On January 31, 2013, FERC addressed PJM Interconnection L.L.C.’s (“PJM”) proposed cost allocation methods for transmission system expansion and enhancements approved during development of Regional Transmission Expansion Plan. FERC deferred a decision on PJM’s proposed cost allocation methods until the Commission conducts a “comprehensive evaluation” of PJM’s related Order No. 1000 compliance proposal. Accordingly, FERC will address the merits of the cost allocation filing in the future order on PJM’s Order No. 1000 compliance.

PJM, filing on behalf of the PJM Transmission Owners, proposed a cost allocation method that first divides facilities into three categories: (1) Regional Facilities (double-circuit facilities operating at voltages of at least 345 kV but less than 500 kV, and facilities at voltages of at least 500 kV); (2) Necessary Lower Voltage Facilities (new facilities or enhancements to existing facilities below the voltage limit for Regional Facilities, constructed or strengthened to support new Regional Facilities); and (3) Lower Voltage Facilities (any Required Transmission Enhancements that are not Regional Facilities or Necessary Lower Voltage Facilities). Next, PJM Transmission Owners proposed to allocate costs of Regional Facilities and Necessary Lower Voltage Facilities using a “hybrid method.” As detailed by PJM Transmission Owners, under the hybrid method, one-half of each project’s cost is allocated on a postage-stamp basis to zones based on load ratio share and merchant transmission facilities in accordance with Firm Transmission Withdrawal Rights. The remaining half would be allocated to specific beneficiaries using different methods, which will depend on project classification. The whole cost of any Lower Voltage Facility would be allocated to specific beneficiaries using the same non-postage stamp method applied to a Regional Facility.

The PJM Transmission Owner’s cost allocation proposal also discussed projects meant to address public policy requirements. PJM Transmission Owners stated that public policy requirements can be taken into account by identifying transmission projects needed for reliability or economic reasons. The projects would then be addressed through interconnection upgrades, and proposed as Supplemental Projects. PJM Transmission Owners also came up with a cost allocation method to address a “fourth path,” called the State Agreement Approach, which PJM included in its Order No. 1000 compliance filing. Pursuant to the State Agreement Approach, one or more states can identify a “transmission enhancement or expansion” which PJM hasn’t found to be necessary for reliability or economic reasons, but which a state or states determine to be necessary to address public policy requirements. Additionally, PJM Transmission Owners’ proposal addressed: (1) cost allocation for interconnection related projects and upgrades to accommodate interconnecting generation and merchant transmission facilities; (2) replacement facilities; (3) association of transformers, spare parts, and other equipment with Regional Facilities or Necessary Lower Voltage Facilities for cost allocation purposes; and (4) modifying the application of a $5 million threshold for allocation of costs for Required Transmission Enhancements.

The Commission’s Order is available here.