FERC has set certain issues for hearing and settlement judge procedures, including lobbying costs, in relation to the Potomac Appalachian Transmission Highline (PATH) project.
FERC’s order follows PJM Interconnection’s board of directors’ August decision to officially remove PATH from PJM’s regional transmission expansion plan.
According to TransmissionHub data, PATH, a joint venture between Allegheny Energy and American Electric Power (NYSE:AEP), was proposed as a 275-mile, 765-kV transmission line designed to supply power from the Amos substation in Putnam County, W.Va., to a proposed electrical substation in Frederick County, Md. The estimated cost for PATH was $2.1bn. Allegheny Energy merged with FirstEnergy (NYSE:FE) in February 2011.
In its Sept. 20 order, FERC noted that certain challenges put forth by private citizens Keryn Newman and Alison Haverty – referred to by FERC as the challengers – raise issues of material fact that cannot be resolved based on the record before it and are more appropriately addressed in an evidentiary, trial-type hearing or settlement judge proceedings. Therefore, except for the prudence of costs associated with the National Wild Turkey Federation, FERC set the issues for hearing and settlement judge procedures, including lobbying costs, double-counting of costs between FERC accounts and shared parent company costs among affiliates.
Regarding the federation matter, FERC noted that the challengers argued that PATH improperly booked $50,000 to FERC Account 107, “Construction Work in Progress – Electric (CWIP),” which represents the first part of a three-year payment of $150,000 to the federation. The challengers claimed that this amount is booked to the wrong account and should not be included in CWIP, thus earning a return on and of equity, as it is related to PATH’s advertising and marketing plan.
PATH noted the federation is a national non-profit conservation and hunting organization and that PATH as well as other utilities have partnered with the federation to improve wildlife populations, habitat and biodiversity in lands that utilities own or manage for their rights-of-way associated with transmission projects.
FERC said expenditures on the federation were prudently incurred but set for hearing and settlement judge procedures the issue of whether they were properly accounted for. “We have a concern with PATH’s inclusion of these costs in a rate base account … rather than in an expense account,” FERC said.
The challengers argued that PATH improperly accounted for its lobbying expenses, saying that PATH incurred expenses from Access Point Public Affairs, detailing the scope of work, among other things, as lobbying before the Virginia Legislature, but simultaneously saying that Access Point will not be lobbying before the legislature. PATH, however, said that it properly included the costs of Access Point in the annual updates and that none of the costs includes lobbying or other activities that would not be recoverable in the formula rate.
The challengers also said they uncovered numerous invoices that were posted to more than one regulatory account, artificially inflating PATH’s expense and recovery. PATH acknowledged there are isolated incidences of inconsistent accounting journal entries that were corrected and urged FERC to find that the corrected annual update complies with the formula rate requirements.
Among other things, the challengers argued there are several instances where PATH’s parent companies allocated identical expenses, but PATH Allegheny Company (PATH AYE) and PATH West Virginia Transmission Company (PATH WV) each used different FERC accounts for the same costs. PATH consists of two operating companies including PATH WV and PATH AYE. PATH claimed that the formula rate and formula rate protocols allow for costs incurred by the corporate parent to be allocated to its regulated utility companies where the costs are properly recoverable by the regulated utility and the corporate allocation methodologies, FERC added.
In June 2010, PATH made an informational filing detailing its annual update to its 2009 transmission rates based on a 2008 settlement’s formula rate. In January 2011, the challengers filed a formal complaint against PATH’s 2010 update.
In June 2011, PATH made an informational filing detailing its annual update to recalculate its 2010 annual transmission revenue requirement and on December 2011, the challengers filed another formal challenge against PATH’s 2011 update.
PATH WV and PATH AYE each have parallel formula rates for calculating their individual revenue requirements, which are combined to result in a single revenue requirement for the PATH transmission project as a whole. The formula rates are populated using data from each company’s “FERC Form No. 1” for the prior year and projections of costs, which are trued up in subsequent years.
FERC noted that the challengers argued that the formula rate protocols’ discovery process showed a wide range of basic accounting errors due to PATH’s poor accounting and management practices, including costs posted to more than one FERC account. The challengers requested, among other things, that FERC reject PATH’s annual updates as in contravention of its formula rate, order PATH to disclose all information requested under the terms of the formula rate protocols, and conduct a full evidentiary hearing into whether the annual updates conform to the formula rate and whether there has been an over-recovery of rates.
In its February 2011 answer, PATH said the challengers’ requests that FERC, for instance, direct a comprehensive audit of PATH’s formula rate and accounting, and that it initiate a formal investigation into PATH’s activities, policies and practices are beyond the scope of a formal challenge under the formula rate protocols.
Among other things, FERC directed PATH to reflect any rate corrections resulting from the hearing proceedings in the next succeeding annual update.
According to an Oct. 2 FERC order, the chief judge appointed Judge Jennifer Whang as the settlement judge in the case and a settlement conference with Whang is scheduled for Oct. 18.