FERC: Postage-stamp allocation of transmission enhancements at, above 500 kV is reasonable

FERC, in a March 30 order involving PJM Interconnection (PJM), found that the postage-stamp method of allocating costs of transmission enhancements that operate at or above 500 kV is a just, reasonable and not unduly discriminatory method of allocating these new facilities’ costs.

The order responds to a decision by the United States Court of Appeals for the Seventh Circuit remanding to FERC the issue of the appropriate methodology to be used to allocate costs associated with new transmission facilities at the stated voltages.

“While it is necessary that we issue this order at this time to respond to the court’s remand, our determination here should not be construed as preventing PJM and its stakeholders from developing other cost allocation methodologies in response to [FERC] Order No. 1000 or other relevant stakeholder processes,” FERC added.

PJM and its stakeholders are not precluded from considering certain approaches, which combine the attributes of flow-based modeling and the realization that 500-kV and above facilities in PJM provide broad regional benefits, in development of the Order 1000 compliance filing or other relevant stakeholder processes, FERC said.

According to PJM, its planning process will choose facilities at different voltage levels to resolve multiple violations in multiple areas over a long period of time. To the extent PJM makes adjustments to its planning process for choosing facilities to meet the region’s needs in the course of compliance with Order 1000 or other relevant stakeholder processes, it is not precluded from considering whether those changes also need changes in cost allocation, FERC added.

In a March 30 statement, FERC Commissioner Philip Moeller said the methods for assigning the actual costs of transmission lines are divided into two categories: one based on actual power flows today, and one based on the unpredictability of future power flows.

“Given these two approaches, this commission needs to flexibly apply its expertise so that it can adopt the best methodology based on the specific configuration of a transmission network,” he said.

In explaining why cost assignment is difficult for transmission assets, Moeller noted that the benefits of a needed transmission line can overwhelm its cost, and energy consumers at both ends of a networked transmission line will receive benefits, but calculating those benefits is complex as those costs depend on moment-to-moment changes in the power grid’s configuration. Among other things, he said he encourages PJM’s stakeholders’ efforts to find consensus on the methods for allocating transmission costs.

In a separate March 30 statement, FERC Commissioner John Norris said he supports “our determinations today because I believe they appropriately apply the foundational principle of ‘beneficiaries pay’ to the record evidence before us regarding the planning and usage of transmission facilities in the PJM region.”

He noted that the case is somewhat unusual in that FERC, having found PJM’s previous cost allocation methodology unjust and unreasonable in 2007, bore the legal burden to determine a just and reasonable methodology. FERC also had to respond to the court’s remand, he said.

According to FERC, the proceeding began as an investigation under the Federal Power Act into whether PJM’s allocation of transmission costs for existing and new transmission facilities is just and reasonable.

In April 2007, FERC issued an order on an initial decision concerning PJM’s transmission rates for existing and new transmission contained in PJM’s then-current open access transmission tariff.

In compliance, PJM revised its tariff to adopt the postage-stamp methodology to allocate the cost of investment in all new transmission facilities included in the regional transmission expansion plan that operate at or above 500 kV, FERC added.

The court granted a petition for review regarding the use of a postage-stamp cost allocation methodology for new transmission lines that operate at or above 500 kV and, in October 2009, remanded the case to FERC for further proceedings.

“PJM is neutral on how the costs of new transmission are allocated,” a PJM spokesperson told TransmissionHub April 4. “It is a regulatory judgment. PJM’s interest is in having in place a definitive method of cost allocation to allow approved transmission upgrades and additions to move forward.”

In an April 2 statement, the Coalition for Fair Transmission Policy said that where transmission upgrades are required to meet an area’s reliability needs, it is appropriate to allocate the costs of such facilities to that area. “In this particular case, PJM found – and the FERC concurred in its [order] – that transmission lines over 500 kV needed for reliability had regional reliability benefits and therefore cost allocation across the region was appropriate,” the coalition said.

About Corina Rivera-Linares 3209 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.