Parties square off at FERC session on PJM cost allocation

The contentious issue of transmission cost allocation in PJM Interconnection (PJM) was on display Jan. 12 at the FERC technical conference addressing the issue, with numerous parties giving different views on whether there is a better way to assign costs than the solution-based distribution factor (DFAX) method used for some projects in PJM.

Because transmission additions affect the grid in different ways and power flows change so often based on numerous factors, the exercise of assigning costs for a new project based on who benefits at a given point in time can present challenges, all parties seemed to agree. The thrust of the debate was whether there is a definable category of reliability projects within PJM for which the solution-based DFAX cost allocation method may not be just and reasonable, and if that is the case, what would be a better method.

Defending the solution-based DFAX method were a group of PJM Transmission Owners, represented by Frank Richardson of PPL Electric Utilities Corp., and Public Service Electric and Gas (PSE&G), represented by Esam Khadr, senior director of electric delivery planning at PSE&G. Much like TransmissionHub reported on comments filed at FERC ahead of the technical conference, Richardson and Khadr said that the solution-based DFAX method provides a consistent metric to measure a broad range of transmission projects and it can be updated based on changes in the use of the transmission system over time.

While the solution-based DFAX method may not be perfect, “it is the best method that we have” and trying to establish some other method or new category of reliability project warranting special treatment within PJM would bring protracted litigation, Richardson said at the technical conference.

Opposing the solution-based DFAX method as it has been applied for the Artificial Island transmission project were representatives from Consolidated Edison of New York (Con Ed), Linden VFT, Old Dominion Electric Cooperative (ODEC), the Neptune Regional Transmission System and Hudson Transmission Partners, as well as state agencies from Maryland and Delaware. For the latter group, Robert Weishaar represented the Maryland Public Service Commission (PSC), the Delaware PSC, consumer advocates and other agencies from both states.

PJM itself has maintained that it does not decide the specific cost allocation for transmission projects and that the cost allocation methodology is determined by transmission owners and filed with FERC. Steve Herling, vice president of planning at PJM, spoke and addressed FERC staff questions at the conference, noting that different types of transmission projects can address reliability problems and obviate the need for other projects.

About nine other projects were considered to address the grid stability issues in southern New Jersey, but with the Artificial Island project chosen by PJM, the other projects will not be needed, Herling said.

When questioned by FERC staff, Herling said a new category of reliability projects requiring a different cost allocation method would not be used very often, and that the solution-based DFAX method provides advantages over the reliability violation-based DFAX method that preceded that method. The violation-based DFAX method measured flows associated with a reliability violation and assigned costs to those causing the transmission upgrade, while the solution-based DFAX method measures flows based on the solution being in place and assigns costs based on the beneficiaries of the upgrade, he said.

Thirty years from now, the Artificial Island project will still be providing benefits to grid users but the Salem nuclear plant may be retired and other changes can alter flows, which is accounted for with the solution-based DFAX method, Herling told FERC staff.

The issues came to a head shortly after PJM chose the Artificial Island transmission project through a competitive selection process to address grid stability issues in southern New Jersey, with LS Power selected to build a 230-kV line under the Delaware River. Almost 90% of the estimated $275m cost of the project will be allocated to PJM’s Delmarva zone, which prompted the outcry from Maryland and Delaware state officials, among others.

The technical conference was scheduled as a result of a FERC order in November that said PJM’s cost allocation plan may be unjust, unreasonable and unduly discriminatory. FERC directed staff to explore whether there is a category of reliability projects within PJM for which the solution-based DFAX method may not be just and reasonable.

Speaking for the Maryland and Delaware agencies, Weishaar said that there should be a new, definable category of reliability projects that warrant an exception to the solution-based DFAX method, even if the Artificial Island project is the only one in that category. Limited exceptions to the cost allocation method must exist, and those exceptions “need not swallow the rule” that led to the solution-based DFAX method, Weishaar said.

PJM’s own analysis showed that only 10% of the benefits of the Artificial Island project will accrue to customers in the Delmarva zone, and that mismatch of costs and benefits “is why we are here today,” Weishaar said.

ODEC’s Mark Ringhausen agreed that there is a definable category of PJM projects for which the solution-based DFAX method may not produce just and reasonable results, noting that ODEC accounts for about 20% of the load in the Delmarva zone and would be assigned a significant portion of the Artificial Island costs.

“ODEC is confident that an alternative methodology, or methodologies, can be developed,” he said.

One possible alternative would be a method that would assign costs based on the relative proportion of economic benefits that result from a stability upgrade, with the primary benefit from such a project being to increase the availability of a generator’s output to provide capacity and energy in the PJM region, Ringhausen said.

He emphasized that ODEC believes the solution-based DFAX method produces reasonable results for a vast majority of reliability projects in PJM. But since that method went into effect in early 2013, ODEC has seen a small number of reliability projects where the cost allocations produced by the method do not fairly align with the beneficiaries of the project, Ringhausen said.

Khadr of PSE&G countered that there is no need for exceptions or “carve-outs” to the solution-based DFAX method, which was the subject of protracted litigation and settlement before FERC following the violation-based DFAX method.

Because reliability projects address multiple drivers or causes rather than a single issue, a new category would not be easily defined as other parties suggested, Khadr said. All reliability projects are unique because of their location and the way the grid is used, which prompted the change to the solution-based DFAX method, Khadr said.

Richardson of the PJM Transmission Owners added that while numerous parties have their own opinions about the solution-based DFAX method and how it is applied, nobody has come up with a replacement that can work for all types of projects. That is because the solution-based DFAX method is the best option available, and trying to change it will cause problems and lead to more litigation, he said.

The transmission owners do not believe there is a definable category of projects for which the solution-based DFAX method is not just and reasonable, and heading down that road could lead to “an endless debate” and hold up project development, Richardson said.

While it is tempting to look at original drivers or causes of reliability problems, once a transmission solution goes into service “the original driver is not a factor anymore” because the use of the grid can change over time, Richardson said. That is why the current method, which is updated annually, is the best option, he said.

Amy Fisher of Linden VFT, which owns power lines in New York and New Jersey, said that PJM should accept responsibility for administering its own tariff and address cost allocation as part of the project selection process. The current process allows load-serving entities to predict in advance any project costs they can “offload to others” and plan a transmission solution around that, Fisher said.

Considering cost allocation after projects are selected is bad policy, and it avoids looking at options that may be less costly, Fisher said.

With so many protests at FERC over numerous projects in PJM, anyone claiming that the current method is working well is overstating its success, she added.

The solution-based DFAX method is “clearly not the appropriate method” for merchant transmission facilities such as Hudson and Neptune, said Jeff Wood, senior vice president with PowerBridge LLC, the developer of the two projects.

Because such facilities do not have captive customers or a rate base, they only recover costs based on the differential between energy and capacity prices in PJM and the New York ISO, Wood said. That is important when flow-based models are used to determine benefits, since Hudson and Neptune are not causing the reliability problems that prompted the need for the Artificial Island project, but they are being assigned costs, he said.

Because merchant transmission facilities are so different and such a limited number of them are in the PJM region, they may require a different cost allocation method than what is applied to other transmission owners, Wood said.

At the end of the technical conference, after more than four hours of discussion, FERC staff said they would set a schedule for post-technical conference comments to be filed. FERC staff may issue some questions for parties to address in those comments, the FERC staffers said.