A Teachable Moment on PATH Costs to WV Rate Payers

We welcome the new year with a great opportunity to provide a much clearer picture of how AEP/FE pick rate payer pockets for PATH.  You have read for years here on The Power Line that the cost of the PATH zombie project is being passed on to WV rate payers.  If you read WV newspapers, watch TV in WV or even read the press releases put out by the WV PSC, you will not learn how this process works.

Here is how the Charleston Gazette described the FE electric rate increase that goes into effect today for Mon Power and Potomac Edison rate payers in WV:

Nearly $20 million of the hikes aim to allow Monongahela Power and Potomac Edison to recoup spending on fuel, transmission and purchased power costs.

No mention of PATH costs here.

Here is the WV PSC press release on the same rate case:

In an ENEC case, customer rates are adjusted to true-up recovery of actual fuel costs, purchased power and net purchased transmission costs and revenue for the previous year and to reflect projected changes in Mon Power and PE’s cost of fuel and purchased power for the year ahead. The ENEC process does not involve the recovery of profit, rate of return on investment, or salaries and wages.

No mention of PATH here.  But we do have the mention of “net purchased transmission costs” and the description of this rate case as an “ENEC case.”  There are two kinds of rate cases at the WV PSC.  One type of rate case is the “base rate case” in which power companies are allowed to charge rate payers for reasonable profit and their basic (hence the word “base”) expenses and overhead costs like salaries, costs of buildings and equipment, etc.  “ENEC cases,” as the explanation above points out, are cases in which the PSC allows power companies to recover the costs of additional charges that can change year to year, such as fuel costs and purchased power.

As the statement above notes, ENEC cases also include “net purchased transmission costs.”  These are costs, or credits (That’s why the phrase is “net” costs.), that are charged to retail electricity companies like Mon Power and Potomac Edison by PJM Interconnection.  In recent years, mainly as a result of the federalization of the national transmission system by the Cheney-inspired 2005 Energy Policy Act, this category of charges has grown dramatically.  More and more federalized costs have become hidden from rate payers in the complex new FERC processes.

The paragraph above from the WV PSC press release includes a totally false claim when it states that: “The ENEC process does not involve the recovery of profit, rate of return on investment, or salaries and wages.”  All of these costs are included in the transmission costs generated by PATH and passed on to Mon Power and Potomac Edison, and which the power companies have included in their current ENEC case.  None of those costs were excluded by the PSC in their final order in this case, so all of these PATH “profit, rate of return on investment, or salaries and wages” are included in the new Mon Power and Potomac Edison rate increase.

Don’t believe me?  Go to the WV PSC final order in the FE rate case.  Click here to go to that order.  On page 2 of the Order, you will see the same false statement that was repeated in the press release:

An ENEC case is a type of rate case for electric utilities that deals with the fuel, purchased power, and purchased transmission costs incurred by an electric utility to provide service to customers. An ENEC proceeding does not address other costs such as employee salaries, maintenance of generation, distribution, transmission and other facilities, customer service and administrative costs, real estate expenses, etc., that are the subject of base-rate proceedings before the Commission, nor does an ENEC proceeding address or contain any allowance for profit or rate of return on the items included in the ENEC.

So we won’t find any accurate information about PATH charges to WV rate payers in the PSC order.

For that, we need to go to what is, in effect, the FirstEnergy application for their rate increase.  To begin a new rate case, a power company files a letter supported by testimony by its employees detailing why they want to raise rates.  In this case, FirstEnergy subsidiaries Monongahela Power and Potomac Edison filed this testimony on September 1, 2011.  FirstEnergy Director of Rates and Regulatory Affairs for the two power companies, Kevin Wise, presented a number of spreadsheets detailing the past costs for which FirstEnergy wanted to recover adjustments, as well as projected costs for the calendar year 2012.

Here is a link to the FirstEnergy rate filing from September 1.  Mr. Wise’s testimony begins on page 80 of the .pdf document (not the page number of the testimony document).  In his testimony, Mr. Wise refers to several appendixes which detail the costs he wants rate payers to pay.  These appendixes tell the tale.

Keep in mind that the WV PSC, in its final order in the TrAIL power line case, prevented FirstEnergy from recovering any of the costs charged by PJM for the TrAIL line for a period of seven years starting in 2008.  Those costs are shown on the spreadsheets but are specifically excluded from the rate increase request.

However, in the expenses for the “review period” for which FirstEnergy wants adjustments to be counted toward the new rate increase, there is an expense called “Non-TrAIL Project Transmission Enhancement Expense.”  If you can get over the “enhancement” propaganda claim, you will note that the total expense for the July 2009 to June 2010 review period in this category is $5,505,193 which FirstEnergy wants to include in the rate calculations for its Mon Power and Potomac Edison customers.

The same non-TrAIL expense line appears in FirstEnergy’s forecast for the full 2012 calendar year.  The 2012 forecast expense in this category is $1,426,220.  Unlike the other spreadsheets, this expense is listed with an account number 565467.  The curious thing about the forecast spreadsheet, which you can see on page 293 of the .pdf document, is that for the first time an expense called “Transmission Enhancement Charges PATH,” account number 565465, appears on the spreadsheets.  The projected amount for this item for 2012 is $442,830.

It is not clear, because FirstEnergy’s accounting system is not consistent, and Mr. Wise provides no explanation, whether or not PATH charges were included in the Non-TrAIL Project Transmission Enhancement Expense from July 2009 to June 2011.  The power companies may have hidden the expenses that PJM charged them for PATH in this larger account before 2012, but the $442,830 PATH expense is clearly set out in the 2012 projection.

The PJM Interconnection charges for PATH include all costs recoverable under FERC protocols, including profit, return on investment, salaries and other overhead expenses for the PATH project.  Because these costs are recovered as part of the recent ENEC case, it is simply false to claim that these kinds of costs are not passed on to rate payers in ENEC cases.  That may have been true at some point in the past, but it is certainly not true any more.

Keryn has her own take on the situation on StopPATH WV.

3 thoughts on “A Teachable Moment on PATH Costs to WV Rate Payers

  1. PATH (and other transmission projects’) rate bases end up in WV ENEC cases, so the PSC’s claim that these are not base rate cases is… disingenuous? However, the only thing the public at large knows is that they are paying more for electricity. The WV-PSC (and CAD) go after the big money — the fuel and purchased power costs, and don’t pay any attention to the transmission charges, although they amount to millions of dollars a year. This kind of wraps a whole lot of recent events together. Transmission rates are set through federal filings and administered by PJM (who bills your particular provider, who then bills you for your share). FERC accepts utility filed rates and expects that the ones paying them will monitor the filings. PJM’s tariff specifically points to load serving entities (the ones billed by PJM), state utility commissions and CADs as being responsible for monitoring them, and also includes the infamous “other affected parties” which we now know to mean anyone who ends up paying these costs. However, the Maryland OPC (their version of CAD) recently admitted to FERC that state utility commissions, LSEs and other “entities” do not monitor these filings because they do not have the staff and resources to monitor each formula rate filing every year for each transmission owner (between 10-20 of them in PJM). After spending time chasing just ONE of these FRs for the past two years, I can see why. It’s incredibly tedious and time consuming. So, because FERC expects states or others to check the utility’s accounting, and they do not, the utility feels free to include whatever costs they want in their FERC rate because no one is scrutinizing what they file. And then came Keryn & Ali. PATH has been hard at work this year (the second year we have undertaken this effort) trying to make us go away so they could go back to collecting whatever they want with no one monitoring them. The other day, FERC said “nuh uh”. However, this system is still broken. Big time. Do you see a Keryn & Ali team monitoring all these FRs? No. It doesn’t happen.

    And about the TrAIL/non-TrAIL transmission “enhancement” charges in the ENEC case, TrAIL is separated because we’re not supposed to be paying for it. So, in one set of spreadsheets, they simply have “TrAIL and non-TrAIL.” In the forecast (and shown on the allocation factor tables) is a further breakdown of these two categories. In the “non-TrAIL” category there are “non-AE” which would include transmission in other parts of PJM that is charged to everyone (i.e. MAPP, Susquehanna-Roseland, the MSD Rebuild, others 500kV and over), then there’s PATH, which I assume has its own category because it’s an AE project (?), and then there’s “non-TrAIL” which probably includes the portion of the 100% AE (now FE, bigger territory) transmission under 500kV. They are all separate line items (subaccounts within 565, Transmission). Thanks for digging this up again. I had reviewed it at one point last fall and discussed with someone, but I got tweaked just reading the PSC’s press release yesterday. Then I read the two orders, then it was party time so I never quite got there (and really didn’t feel like it!)

    • Keryn,

      Thanks for the additional information. I especially appreciated your pointing out the fact that Non-TrAIL Transmission Enhancements includes a number of transmission-related projects for which PJM is collecting money from retail power companies. A lot of these “enhancements” are bogus giveaways like PATH and TrAIL, but a lot of these “enhancements” really do make the PJM system better, such as the Mt. Storm – Doubs rebuild and a lot of the individual voltage regulation devices that regional power companies have added.

      As you point out, this is all part of the nickel and dime strategy that the big power companies have put in place at FERC to hide rate increases from consumers and state PSCs.

      The WV PSC needs to get its head out of the sand and realize that life is not so simple any more. In Cheney’s new world of FERC control, the old distinctions between base rate cases and ENEC cases no longer exist.

  2. So, the states and the “entities” do not have the money and resources to monitor each one of these formula rate filings every year, I can understand that fully. However, a little cooperation would go a long way… who says each state or entity has to do their own evaluation of each FR? Why can’t they pool resources to get the job done? Admittedly, it would take a pretty sizable staff to monitor all these rate filings, which all happen around the same time every year. However, the discovery period is 6 months long. But then again, it’s hard to do effectively if the auditor has no familiarity with the project that would enable them to “smell” something that’s off. Forensic accounting is so much easier when you watch events as they happen and then go back and find the money trail later.

    At any rate, FERC putting the burden on states, and the states shrugging it off, so that there is no accountability does not create a rate that is just and reasonable. Just and reasonable rates are the main point of the existence of regulatory agencies, both federal and state. Something needs to change here.

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