With LaFleur dissenting, FERC authorizes cost allocation for PJM projects

The Delaware Public Service Commission (PSC) is considering whether to seek rehearing of FERC’s April 22 decision accepting the cost allocation proposal of PJM Interconnection (PJM) for the Artificial Island transmission project, a PSC spokesperson told TransmissionHub April 27.

The PSC is disappointed with the FERC ruling that the PSC, along with the Maryland Public Service Commission, did not prove that PJM’s cost allocation method is unjust and unreasonable as it was applied in the Artificial Island proceeding, the Delaware PSC spokesperson said.

“We are looking at our options” and have until late May to decide whether to seek rehearing, she said. The PSC will consider the costs of challenging FERC’s order, since the basis of the joint complaint from the two PSCs was to protect utility customers from facing higher costs to pay for the transmission addition, she added.

FERC approved two orders April 22 accepting the transmission cost allocation plan of PJM for different projects, with one order involving LS Power’s $275.45m Artificial Island project to build a 230-kV line under the Delaware River to resolve operational issues associated with two nuclear power plants in southern New Jersey and the other order addressing the Bergen-Linden Corridor Project, a $1.2bn upgrade of facilities over which PJM delivers power to Consolidated Edison of New York (Con Edison) in New York City.

In the latter case, New York entities challenged the solution-based distribution factor (DFAX) methodology used under the PJM tariff to assign costs for certain transmission facilities, while Maryland and Delaware officials, including members of Congress and Delaware Governor Jack Markell, made similar challenges in the Artificial Island case.

FERC Commissioner Cheryl LaFleur disagreed with the majority and issued a dissenting statement on both orders.

PJM’s cost allocation methodology would have PJM’s Delmarva zone customers pay for a large majority of the Artificial Island project, and Con Edison was assigned about $629m of the Bergen-Linden project costs under the methodology, FERC noted in the pair of orders.

Various parties asked FERC to find that PJM’s use of the solution-based DFAX methodology as applied in the two cases is unjust, unreasonable and unduly discriminatory because it did not result in an allocation of costs that was roughly commensurate with the benefits of the projects, the orders related.

As TransmissionHub reported, FERC held a technical conference on the issues Jan. 12, where parties gave different views on whether there is a better way to assign costs for some transmission projects in PJM and whether allowing limited exceptions to the current methodology would create more problems down the road.

PJM and transmission owners in PJM asserted that the solution-based DFAX methodology is an objective and nondiscriminatory way to assign costs that avoids the need to parse through the different causes, drivers or categories of particular transmission enhancements, FERC said in the Artificial Island order. PJM and the transmission owners said that while the cause of a project may sometimes be relevant to the need for an upgrade at the time of construction, it becomes less relevant over the life of a project, especially since load can shift over time, FERC noted.

The PSCs and other parties asserted that the Artificial Island project does not fit within the solution-based DFAX methodology and that a limited exception to the methodology must exist, noting that a grid stability-driven project, of which there is only one out of more than 1,200 projects identified in a PJM matrix, constitutes a definable category for exceptions, FERC related.

FERC denied the state PSCs’ complaint and other parties who challenged the PJM cost allocation methodology, finding that they did not meet their burden to prove that the solution-based DFAX methodology is unjust, unreasonable, unduly discriminatory or preferential. The orders noted that FERC accepted the methodology as part of PJM’s Order 1000 compliance filing as a just and reasonable method of identifying benefits, and that courts have affirmed FERC’s adoption of a beneficiary-based cost allocation method.

The PSCs and others contended that applying the solution-based DFAX methodology to the Artificial Island project results in a disproportionate alignment of benefits and costs that is unjust, unreasonable and inconsistent with cost causation principles.

“We disagree,” FERC said in the order. “The courts have recognized that no cost allocation method can perfectly assign costs to the beneficiaries of a transmission project,” and FERC has found that where a cost allocation method is accurate in a high percentage of circumstances, “then that is a strong indicator that the cost allocation method is just and reasonable,” FERC said.

In her dissenting statement, LaFleur noted that determining an appropriate cost allocation system for large transmission projects “has been among the most complicated issues presented during my time on the commission.”

LaFleur said that based on the record, particularly as developed through the technical conference, she was persuaded that the complainants met their burden to establish that the solution-based DFAX methodology is unjust and unreasonable. The record in the case “clearly establishes that there is a discrete and identifiable set of transmission projects as to which that methodology produces an anomalous result and does not allocate costs in a manner roughly commensurate with benefits,” she said.

That set of projects is easily defined and limited in number and would include those developed to address short-circuit violations, like the Bergen-Linden Corridor project, and grid stability violations, like the Artificial Island project, LaFleur said.

As a result of FERC’s orders accepting the PJM methodology, entities that use the facilities may grossly overpay for the two projects, while entities that benefit from the resolution of the underlying reliability need may underpay for the facilities, LaFleur said.

LaFleur would grant the complaints and develop an alternative methodology that better aligns the benefits and costs of the two projects, and other similar projects that may arise in the future, she said.

The dissenting remarks of LaFleur are “certainly a factor,” that the Delaware PSC will take into account as it considers whether to seek rehearing, the PSC spokesperson told TransmissionHub. LaFleur made some valid points in her statement, and they may help the PSC as it debates if a rehearing request would be successful, the PSC spokesperson said.