The Delaware Public Service Commission recently approved with conditions the application of Silver Run Electric, LLC, to become a certified electric transmission company in Delaware, with that application related to construction and operation of a transmission line from the Artificial Island nuclear complex in southern New Jersey to a substation near Odessa, Del.
PJM Interconnection deemed the project necessary to improve the reliability and stability of the nuclear units, the commission added. The cost allocation for the project is contentious because of the burden it may place on all Delaware electric customers, the commission said, adding that current PJM cost allocation rules call for the PJM “Delmarva Zone” – which is made up of Delaware and parts of the Maryland and Virginia eastern shore region – to be allocated 90% of the project costs while receiving 10% of the project benefits.
FERC requires that cost and benefits for transmission projects be “roughly commensurate,” the commission said.
The commission noted that based on its analysis, under the current cost allocation methodology, transmission charges for residential customers could increase by $4 per month. Commercial and industrial businesses that use larger amounts of electricity may face much higher price increases, the commission said.
A group led by the commission and including the Delaware Division of the Public Advocate (DPA) and Maryland Public Service Commission, among others, filed a complaint with FERC regarding the cost allocation. The commission added that FERC initially denied the complaint, but in July 2018 agreed to reopen the record to consider alternate cost allocation methodologies; the cost allocation matter is pending before FERC.
The commission said that it approved Silver Run’s certificate of public convenience and necessity (CPCN) application on the condition that FERC approves one of two alternative cost allocation methodologies developed by PJM at the request of commission staff. Those methodologies are the Stability Interference Method (SIM), which would allocate 6.94% of the costs to the Delmarva Peninsula, and the Stability Deviation Method (SDM), which would allocate 10.36% of the costs to the Delmarva Peninsula, the commission said.
If FERC does not resolve the cost allocation issue via an order by Feb. 28, the CPCN will be suspended, the commission noted.
With the conditional approval, Silver Run will be able to continue construction activities and other important critical path project initiatives that otherwise would have stopped if the CPCN application was denied, the commission said.
In a blog post about the Delaware order, Silver Run said, in part, that it “is hopeful that a decision fairly allocating costs will be issued in the near term, allowing for the full release of its construction contractors to bring this important project [in service] to benefit Delaware and the region.”
As noted in the Delaware order, the Silver Run project consists of transmission system improvements and reliability upgrades PJM has determined are necessary to assure the reliability and stability of the regional electrical grid. The solution selected by PJM includes Silver Run’s construction of the new 230-kV Silver Run substation east of Odessa, and a new 230-kV transmission line crossing the Delaware River that will connect the Silver Run substation with the electrical system in the Artificial Island, N.J., area.
Silver Run’s portion of the project is subject to a binding cost cap of $146m subject to the terms and conditions described in the “Designated Entity Agreement,” under which Silver Run bears the risk of construction cost overruns exceeding that cap, the order added.
PJM allocated the project costs using its ex ante Solution-Based Distribution Factor (SBDFAX) methodology, which allocated about 90% of the total project costs to the Delmarva Zone – despite that zone not receiving a commensurate level of benefits from the project – and would result in the average Delaware residential ratepayer paying an additional $1.32 per month in transmission charges associated with Silver Run’s remaining unspent portion of the project solution, the order said.
Delaware and Maryland regulators filed a complaint under the Federal Power Act with FERC challenging application of the SBDFAX cost allocation methodology to the project. FERC in April 2016 upheld PJM’s decision to apply the SBDFAX cost allocation methodology to allocate the costs of the project to PJM members, the order added, noting that several entities, including the Delaware commission and the DPA, filed motions for re-argument with FERC.
While the motions for re-argument were pending before FERC, and at the request of parties, PJM issued recalculated cost allocations using two alternative methodologies – the SIM and SDM – both of which more appropriately aligned project costs commensurate with the benefits to the Delmarva Zone. The order added that citing those alternative calculations, several parties, including Delaware regulators, the DPA, and Silver Run’s parent company, LS Power, requested FERC to reopen the record to consider the PJM alternative cost allocation methods.
FERC in July 2018 granted the motions for reconsideration and to reopen the record, finding that it was unjust and unreasonable to apply the SBDFAX cost allocation methodology to facilities addressing stability related issues, such as the project.
Among other things, the order added that FERC has not yet issued a decision on which cost allocation methodology is just and reasonable for application to the project. The order noted that according to Silver Run, the project would benefit system reliability, Delaware’s economy, as well as Delaware’s public health, safety and welfare, and is consistent with state and federal mandates.
The Delaware order further noted that Silver Run has taken steps necessary to build the project according to PJM’s timeline by, for instance, obtaining all major necessary permits; securing all real estate rights; nearly completing the necessary engineering and procurement work to support the project’s completion schedule; completing factory acceptance tests on three of the seven submarine cables; beginning preparatory work on the in-river transition structure foundation to maintain the project schedule; and securing a binding financial commitment for the project.
The order said that recognizing the quandary in which the Delaware commission finds itself given that FERC has not issued an order on the just and reasonable cost allocation methodology for the project, Silver Run has made two proposals designed to mitigate that quandary. For instance, Silver Run proposed a limited CPCN approval, which provides an established, near-term deadline for issuance of a FERC order on the appropriate cost allocation for the project. Under that proposal, the order added, if FERC does not issue an order by Feb. 28 approving a methodology, the Delaware commission will have authority to review, revoke, or suspend its CPCN approval.
Among other things, the order said that granting the CPCN will provide significant health, safety, and welfare benefits to the general public. The project resolves significant reliability and stability issues and reduces complexities associated with the Artificial Island operating guide, the order said.
In addition, the project provides a separate transmission connection into Delaware, the order said, adding, “Delaware and the Delmarva Peninsula are part of an energy-constrained area regionally, and this redundant transmission connection into the state reduces grid congestion and supports critical grid services such as black start capability and system restoration.”
Maintaining Silver Run’s existing construction schedule is necessary to meet PJM’s required June 1, 2020, in-service date for the critical grid reliability solution, the order said.
The order said that the Delaware commission will stay the effective date of the CPCN until FERC has issued its order establishing that either the SIM or SDM is the just and reasonable ex ante cost allocation for the project.