As I have mentioned on The Power Line before, I get lots of help from friends all over East Virginia, WV and MD. I also thought I was one of the biggest power line nerds around. Well, I’m wrong. There is definitely a bigger nerd than me over in MD. She just sent me this recent article in Transmission and Distribution World.
Transmission and Distribution World. I didn’t even know that it existed. You can even click on a link at their Web site to go to their Vegetation Management Resource Center. Wow. Talk about browsing excitement!
Anyway, back to the great article titled “Consumers Get the Shaft”. In it, Missouri PSC Commissioner Jeff Davis launches a full scale critique of FERC’s cost recovery/profit incentive plan for new transmission lines. Mr. Davis is mad because FERC has just approved a regime for the Southwest Power Pool, of which Missouri is a part. This is the same regime we have been living under in the PJM region for the last four years.
Mr. Davis doesn’t mince words. Go for it, buddy:
The great transmission gold rush is on. From the Southwest to the Midwest, anyone remotely connected to the electric business is hanging out their shingle as a transmission builder and rushing to claim a piece of the transmission gold mine the Federal Energy Regulatory Commission (FERC) has created. And who can blame them?
Under the new transmission cost-allocation scheme FERC approved for the Southwestern Power Pool (SPP), there’s virtually no risk and the sky’s the limit in terms of financial reward. To get started, all you need is an Etch A Sketch for drawing lines across the map, a cost-benefit analysis demonstrating more benefits than costs and the right people to get your project approved by the relevant transmission authority.
Once approved, you can get construction work in progress financing to lower your borrowing costs. Transmission builders can get 100% of their costs capitalized, guaranteed cost recovery for pretty much all their expenses, little or no regulatory oversight on costs and cost-overruns, as well as a hypothetical capital structure to combine with a 13% to 14% return on equity for their projects. All you have to do is complete the project. If that. This begs the question: If you have guaranteed cost recovery and a profit margin, do you really need more incentive? Consumers are going to end up shelling out billions of dollars more than traditional rate-of-return regulation so transmission owners can develop hundreds of millions of dollars in assets they don’t even have to operate.
I love the reference to Etch A Sketch. Sounds just like the engineers at PJM and AEP/Allegheny.
Shepherdstown’s Keryn Newman is now one of the leading experts in the US on FERC’s “cost recovery” system for picking your pocket. She has a great post on StopPATH WV that puts Mr. Davis’ comments together with her work on PATH. It is a very educational read — here.