FERC grants abandonment incentive to PSE&G for portion of Artificial Island project

Accepting PJM Interconnection’s (PJM)request on behalf of Public Service Electric and Gas (PSE&G), FERC on Feb. 18 approved an abandonment incentive rate treatment for PSE&G’s portion of the Artificial Island transmission project in southern New Jersey.

The order allows PSE&G, a subsidiary of Public Service Enterprise Group (NYSE:PEG), to recover any prudently incurred costs for its portion of the project if the project is abandoned for reasons beyond PSE&G’s control.

The utility would have to seek any such abandoned plant recovery of costs in a future filing under section 205 of the Federal Power Act, FERC said in the order (Docket No. ER16-619).

The Artificial Island project involves the construction of a new 230-kV transmission line under the Delaware River and the installation of other facilities to address grid reliability and stability issues associated with three nuclear generation units on Artificial Island in southern New Jersey, the order noted. While LS Power was selected by PJM to build the project through a competitive selection process, certain transformer and substation work would be done by PSE&G and other companies, FERC said, adding that PSE&G estimated its portion of the project would cost $126m.

The transmission enhancements would allow the nuclear units to continue to operate at full output during any single critical line outage, FERC said.

PGE&G claimed that the permitting, construction and procurement risks tied to the project greatly increase the chance of delay and cost increases, increasing the possibility that the project could be canceled after PSE&G invests time and money in the project, the order related. The complexity and scope of the project, particularly the Delaware River crossing and work at the Salem substation due to physical space limitations, present challenges such that the utility will have to design and order materials that cannot be used elsewhere if the Artificial Island project is canceled, FERC said.

“We agree that PSE&G’s portion of the [Artificial Island] project faces risks and challenges sufficient to support this request,” FERC said, noting that the project will require permits and approvals from nearly 50 different agencies at the federal, state and local level.

A failure by project developers to obtain approval from any one of those agencies could have negative consequences, including the possible cancelation of the project, FERC said.

The commission said that PSE&G’s request was consistent with FERC Order 679 with respect to the abandonment incentive, noting that the Artificial Island project was competitively solicited through PJM’s regional transmission expansion plan, which constitutes a fair and open regional planning process.

In addition, the incentive sought by PSE&G was appropriately tailored to address the risks and challenges associated with the Artificial Island project, FERC said.

The ruling is not associated with the cost allocation debate tied to the project, which remains pending at the commission following a technical conference in January. That proceeding involves FERC’s examination of whether there is a better way to assign project costs than the solution-based distribution factor method used for some projects in PJM, following an outcry from parties in Maryland and Delaware, because almost 90% of the estimated $275m cost of the project would be allocated to PJM’s Delmarva zone.