Applied Kremlinology and the New PATH EIS Delay Request

If you read the previous post, did you notice something very odd?  Did you see the reference to “the May 2012 forward capacity auction results”?

This is an entirely new development in AEP/FE’s push for PATH.  In the past, all of AEP/FE’s claims in support of PATH have revolved around PJM Interconnection’s flawed Regional Transmission Expansion Plan, which PJM creates every year.  The power companies’ problem in 2010 was that PJM announced that they were dumping the PATH project in their 2011 RTEP, the final version of which will be published in February 2012, next month.

Remember when the Soviet Union still existed and Kremlinologists would try to figure out what was going on there by who stood where on the parade platform on May Day?  Or how the media try to figure out what is going on in the Vatican by the smoke signals the cardinals put out there?  Well, those of us who report on PATH developments have to rely on the skimpy smoke signals that come out of state PSCs, federal agencies and the power companies to figure out what is going on behind those closed doors.  “Professional” media outlets are too busy covering important stories about the Kardashian family to bother with minor issues like who is raising your electric rates or trying to steal your land.

So we have this odd reference to the May 2012 capacity auction results as being some kind of PJM decision point on PATH.  We have never seen a reference like this from either PJM or AEP/FE.  We know that the purpose of PJM’s capacity auctions is to allow the large generators in the RTO to prevent new power plants from being built on the East Coast, so they can maintain their monopoly position in PJM’s electricity markets.  The MD PSC has been filing complaints at FERC for years, and the NJ BPU has just published a detailed report on how this market manipulation works in the PJM cartel.

Back in 2006, AEP and its PATH lil’ buddy Allegheny Energy (now swallowed by power giant FirstEnergy), cited the low capacity auction prices in Western PJM (where AEP and Allegheny have huge obsolete coal-fired power plants) and high capacity prices in Eastern PJM (where PJM and AEP/Allegheny had been suppressing new generating plants using the very same capacity auctions) as a sign of “congestion” and the need for the PATH and TrAIL power lines.

Why have we not heard this argument recently?  Because despite the 2006 propaganda claims, the capacity price gap between eastern and western PJM has been falling, not rising, in recent years.  That is not because PJM has stopped suppressing new power plants on the East Coast.  In fact, PJM has sued NJ to prevent the state from providing incentives for the construction of three new gas fired power plants to reduce electric rates for NJ citizens.  No, I’ll let PJM tell you.  Here is PJM’s press release following the May 2011 capacity auction:

Renewable resources, including demand response and energy efficiency, made up nearly 68 percent of the new capacity available and about 10 percent of the resources clearing PJM Interconnection’s recently completed capacity auction.

PJM today announced the results of its Reliability Pricing Model (RPM) capacity auction for resources to meet customers’ electric power demand in the June 1, 2014 to May 31, 2015 delivery year.  RPM commits resources three years in advance to be made available to preserve reliability.

“The increase in demand resources follows the introduction of two new demand resource products in addition to the existing product — one available throughout the year and another available for an extended summer period,” said Andrew Ott, PJM senior vice president-Markets. “There was more than a 50 percent increase in the amount of demand resources that cleared this year over last year.

And:

The resources clearing price for all resources except for limited demand response in PJM will be $125.99 per megawatt-day (MW-day). In the northern New Jersey area, which is transmission-constrained, the price will be $225 per MW-day, a decrease of about $20, over last year.

In PJM’s MAAC area the price of capacity will be $136.50 MW-day, a decrease of about $100 from last year.  (The MAAC price applies to the transmission zones of Baltimore Gas and Electric Company, Metropolitan Edison Company, Pennsylvania Electric Company, and PPL Electric Utilities, Atlantic City Electric, Delmarva Power, Jersey Central Power and Light Company, PECO, Public Service Electric and Gas Company, and Rockland Electric Company.) The non-MAAC region, will pay the RTO price of $125.99, an increase of about $100. This region includes western Pennsylvania, western Maryland, Ohio, Indiana, Michigan, Kentucky and Virginia.

“The convergence of prices between the eastern and western regions of the market is primarily driven by the significant reduction in forecasted load growth through 2014/2015,” Ott said.

So, what can we deduce from the smoke signals coming out of AEP/FirstEnergy high dollar law firm that you and I are paying for in the EIS delay?  Why are they suddenly claiming that the May 2012 PJM capacity auction is a big deal for PATH?

Here are my best Kremlinology speculations:

  1. PJM engineers like Steve Herling have told AEP/FirstEnergy that the 2012 RTEP, which PJM has already started compiling although it won’t be published until February 2013, will repeat the 2011 RTEP’s decision that PATH isn’t needed.
  2. PJM and AEP/FE are looking for some excuse to drop the PATH boondoggle, but they just can’t bring themselves to tell us honestly “we give up,” so they want some number that they can use as cover for their surrender.
  3. Or PJM and AEP/FE will try to claim some little increase in the difference between eastern and western PJM capacity prices will show some miraculous new reason that PATH is “needed.”

Unfortunately, we have to wait for more smoke signals.  Our electricity regulators and the corporations they supposedly regulate don’t have much interest in allowing us peons to see what is really going on.

3 thoughts on “Applied Kremlinology and the New PATH EIS Delay Request

  1. Reference smoke signal #2: They can’t just give up. AEP & FE are very worried about what could happen to their $130M capital investment in the project. In order to collect their stranded investment through the abandonment incentive they were granted by FERC back in 2008, they have to prove through a Sec. 205 filing that they had no fault in the abandonment and that all costs were prudent. They know they’re going to go up against fierce opposition at FERC when they make that filing. There are entities that have been salivating at the prospects of intervening in a PATH abandonment filing for years. It’s gonna get ugly.

    And then there’s the obvious… it WAS their fault, since abandonment is the logical outcome for a project that was never needed in the first place. And then there’s the prudence issue hanging around their ankles like lead weights. How can they claim prudence when they have two challenges to the prudence of their expenses outstanding at FERC?

    It’s all smoke and mirrors that will go on as long as they can pull it off, or until PATH thinks they have their ducks in a row to effect collection of their stranded investment. The time to do that was last year… the outlook keeps getting worse, rather than better. Some things just can’t be “fixed.”

  2. So AEP/FE have to come up with some trend or event so they can claim that an “unforeseen” development killed PATH. They were prudent in 2006 when they cooked up Project Mountaineer, but “everyone” was surprised by a drop in demand or the rapid development of demand resources (my bet is on “drop in demand” because they can blame the current depression for that one).

    And if they can’t get FERC to buy their claim of “unforeseen” circumstances, then FERC will make them refund all or most of that $130 million they have already collected from us rate payers.

    That would be a big hit for AEP/FE stockholders. Can’t have that, now.

  3. Oh, they’re just going to blame it all on PJM for “ordering” them to build PATH and then changing their mind. PJM doesn’t care… they don’t have any skin in the game or any assets to lose. They’ll be a willing whipping boy…. until heads start to roll. PATH doesn’t have many secrets left… does PJM want to preserve their integrity (okay, we’re pretending here!)? And that whole economy thing has a hollow ring to it… PATH and PJM kept pretending long past when a reasonable and prudent business would have cut their losses and given up.

    And the $130M is AEP & FE’s money that they have invested in the project buying things (mostly services) for their project. There won’t be many assets to unload, except the land that they significantly overpaid for in their little game of trying to influence approvals and make things easier on themselves. $130M of regulatory assets that don’t amount to a hill of beans in real value. CWIP is an area that’s hardly been examined. This is gonna be fun (oops, am I drooling?). If they can’t get FERC to buy their story on either aspect of abandonment, they risk losing their investment because we won’t have to pay them back for all (or part) of it. They would then have to write it off as a loss. But, that’s a big chunk o’ change… more than a lot of transmission projects cost at completion, and there is absolutely NOTHING to show for it. Who wants to spend the next 50 years paying them back for their mistake?

    Every day that goes by, more of PATH’s “secrets” get pulled into the light of day and their opposition gets just a little bit smarter. They should have folded a long time ago. The stakes just keep getting higher.

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