FERC: Primary Power may not recover $5m development cost for project it will not build

FERC on June 3 denied Primary Power’s request to recoup $5m in development costs for the two static VAR compensator (SVC) projects in West Virginia and Pennsylvania that PJM Interconnection awarded to FirstEnergy (NYSE:FE) and a Dominion Resources (NYSE:D) subsidiary in 2011.

Primary Power, a merchant company and joint venture between Tangibl and Trans-Elect Development Co., in an Aug. 20, 2012, request for rehearing asked FERC to confirm that it qualified for the transmission incentives under FERC Order 679 that the commission conditionally granted in April 2010, including the recovery of pre-commercial development costs (EL12-69).

FERC’s denial was predicated, in part, on the fact that after it granted the transmission incentives, Primary Power proposed to PJM staff, following the cancelation of the Potomac Appalachian Transmission Highline transmission project, that the SVCs be included as reliability projects in PJM’s 2011 regional transmission expansion plan (RTEP).

Primary Power had originally proposed the SVCs as economic projects, and the transmission incentives were granted accordingly. PJM staff eventually recommended to the PJM board that the projects be designated in the RTEP to FirstEnergy and Dominion, which had also proposed the SVCs as reliability projects; the board approved the RTEP in April 2012.

“[T]he commission noted that PJM did not include Primary Power’s proposals in the plan and that, because Primary Power made significant changes to its original proposals, the rate incentives granted in the incentives order would not apply to the proposals discussed in the complaint,” FERC said in the June 3 order. 

FERC also said that Primary Power raised issues upon rehearing that it did not raise in its initial complaint, which the commission said was disruptive to the administrative process and took the matter beyond the scope of the proceeding.

Primary Power on May 14, 2012, filed a complaint with FERC after PJM designated to incumbent transmission owners FirstEnergy and Virginia Electric and Power d/b/a Dominion Virginia Power (Dominion) the right to build, own and finance the 600 MVAR Meadowbrook SVC project and the 250 MVAR Mt. Storm SVC project. PJM’s action came after it said in November 2011 that the projects should be designated to Primary Power as the projects’ architect.

FERC on July 19, 2012, issued an order finding that PJM acted in accordance with its open access transmission tariff in awarding the projects to the incumbents, which were able to propose building the projects at lower cost than Primary Power. Primary Power on Aug. 20, 2012, filed for clarification or rehearing of the July order, and on March 23, filed a separate request for reconsideration of the order on the basis that PJM’s Order 1000 compliance proposal indicated that it was not necessary to add a requirement to look at project costs “because the [selection] criteria already included ‘cost effectiveness,’” according to the June 3 order.

“Primary Power characterizes PJM’s statements as an ‘acknowledgement that it lacks the authority to select [Regional Plan] projects on the basis of costs,’” FERC said. “Primary Power concludes that PJM’s consideration of cost along with the other operational factors described in the 2011 Regional Plan supporting materials is inconsistent with its statements.”

FERC said that PJM’s statements relate to newly filed tariff provisions submitted in compliance with Order 1000, not to the tariff provisions in effect at the time of the proceeding and thus would not change the result of the proceeding.

After its July 2012 decision, FERC Chairman Jon Wellinghoff said the decisions FERC made in this and three other similar cases underscore the importance of the removal of right of first refusal (ROFR) language from transmission tariffs in order to promote more competition among transmission projects. 

The three other cases in which FERC ruled in favor of incumbents involved Xcel Energy (NYSE:XEL) vs. American Transmission Co. (Docket No. EL12-28); Pioneer Transmission vs. Northern Indiana Public Service Co. (NIPSCO) (Docket No. EL12-24); and Central Transmission vs. PJM (Docket No. EL10-52). 

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.