E-4: Commissioner Christie’s Concurrence to Letter Order Approving PATH Settlement, ER12-2708-010, et al.

Docket No. ER12-2708-010, et al.

An uncontested final settlement of a rate case dating back nearly a decade and a half may seem hardly noteworthy.  But as Willy Loman’s wife Linda said in Death of a Salesman, “attention must be paid;”[1] paid to the PATH example, that is, because of the major lessons – and warnings – it holds for long-term regional transmission planning driven by policy goals, the substantial costs that go with such projects, and how FERC’s policies inflate those costs to consumers. 

First the basic facts:  The PATH project was planned as a long-distance, high-voltage transmission line crossing three states that was approved for construction and regional cost allocation through selection for PJM’s regional transmission expansion plan (RTEP).[2]  PATH applied for certificates of public need in three states – West Virginia, Virginia, and Maryland – none of which ever issued a certificate.  PJM later removed PATH from the RTEP, and it was never built.

Even though not a single ounce of steel was ever put in the ground, PATH’s developers have been collecting money from retail customers in the PJM states ever since it was approved for PJM’s RTEP.  Since 2008, the total amount that consumers have been forced to pay to PATH’s developers has been approximately $250 million – that’s right, let me repeat:  consumers have paid roughly $250 million for a project that was never built nor found needed by a single state regulator.  Adding insult to consumers’ injury, that amount was caused and inflated by a whole host of Commission-approved transmission incentives:

Approval of a 50-basis point incentive return on equity (ROE) adder to PATH’s base ROE for becoming a member of PJM (RTO participation adder);

• Approval of a 150-basis point incentive ROE adder to PATH’s base ROE for the risks and challenges related to the PATH project;
• Authorization to include 100% of Construction Work in Progress in rate base (CWIP Incentive);
• Permission to file for recovery of development and construction costs if the project is abandoned for reasons beyond PATH’s control (Abandoned Plant Incentive);
• Permission to use a hypothetical capital structure of 50 percent debt and 50 percent equity during the construction period (Hypothetical Capital Structure Incentive);
• Authorization to include in rate base an unamortized regulatory asset, consisting of deferred pre-commercial expenses not included in CWIP, and to amortize the deferred amounts during the construction period; and
• Authorization to apply and accrue carrying charges on the regulatory asset using an Allowance for Funds Used During Construction rate until the deferred amounts are included in rate base.[3]

By this point, you may be asking yourself whether there are any incentives the Commission did not give to the PATH developers.

So this order, which appears to be a routine uncontested settlement – a “nothing-burger” – is actually a very big deal in terms of the important lessons it teaches: 

First, the Commission’s incentives policies for years have been ridiculously generous to transmission developers while inflicting an ongoing victimization of consumers.  I have repeatedly criticized these incentives – particularly the CWIP Incentive, Abandoned Plant Incentive, and RTO participation adder – in numerous cases since I joined the Commission.[4]

Second, the Commission’s formula rate structure – which confers a presumption of prudence to transmission developers when they file for cost recovery – facilitated this assault on consumers, as it does regularly.  As I have done with incentives, I have frequently spoken out on the need to reform and revise those formula rate processes.[5]  This case illustrates exactly why.

Finally, PATH graphically illustrates the inherent dangers in approving for regional cost allocation long-distance projects based on a prediction (i.e., a guess) of what the generation mix will be in 20 years or more.  PATH was originally part of the huge “Project Mountaineer” scheme – announced with great fanfare right here at the Commission itself – to build three high-voltage lines across hundreds of miles from West Virginia to East Coast load centers.[6]  The vast majority of the power to be delivered along these lines was to be coal-generated.  After running into a firestorm of opposition in both the states in the path (no pun intended), as well as the end-user load states, Project Mountaineer was abandoned except for the PATH project, which represented a segment of one of the proposed Project Mountaineer lines.[7]  That segment was never built either.  Yet, consumers have been paying for it ever since.  The lesson here is clear:  For policy-driven long-distance, regional transmission projects affecting consumers in multiple states, it is absolutely essential that state regulators have the authority to approve – or disapprove – the construction of these lines and how they are selected for regional cost allocation and what that cost allocation formula is, if their consumers are going to be hit with the costs. 

As the Commission considers reforms to its transmission incentives policy,[8] transmission planning and cost management,[9] and its regional transmission planning and cost allocation requirements,[10] “attention must be paid” to these lessons.

For these reasons, I respectfully concur.