On April 22, 2016, FERC denied a complaint filed by the Maryland and Delaware Public Service Commissions (the “Complainants”) against PJM Interconnection LLC (“PJM”) alleging that PJM’s use of the solution-based distribution factor (“DFAX”) method to allocate the costs for a new transmission project in PJM was unjust and unreasonable. In denying the complaint, FERC accepted the proposed cost allocation for the “Artificial Island Project.”
On July 29, 2015, the PJM Board approved a new transmission project known as the Artificial Island Project, which includes the construction of a new 230 kV transmission line under the Delaware River to relieve certain system stability and operational issues at the “Artificial Island”—an area in southern New Jersey where the Salem Units 1 and 2 and the Hope Creek Unit 1 nuclear generating units are located. On August 28, 2015, PJM filed the cost responsibility assignments for the Artificial Island Project with FERC using the DFAX method, a cost allocation method approved by FERC for use in the PJM Regional Transmission Expansion Planning (“RTEP”) process (see December 7, 2015 edition of the WER).
In their August 28, 2015 complaint, the Complainants alleged that the use of the solution-based DFAX method is unjust, unreasonable, and unduly discriminatory and preferential, as applied to the Artificial Island Project. Specifically, the Complainants argued that the method does not allocate RTEP project costs in a way that is roughly commensurate with the project benefits. In support of this contention, the Complainants noted that, under their own analysis, only about 10 percent ($17.04 million) of the total projected annual load payment savings of $169.2 million would accrue to the Delmarva Zone on an annual basis.
In its order denying the complaint, FERC noted that it had already found the solution-based DFAX method to be a just and reasonable method of cost allocation in its orders on PJM’s Order No. 1000 compliance filings, and that federal courts had affirmed FERC’s adoption of this method. With respect to the disproportionate alignment of benefits and costs raised by the Complainants, FERC stated that “the courts have recognized that no cost allocation method can perfectly assign costs to the beneficiaries of a transmission project” but that nonetheless “[t]he Commission has found that where a cost allocation method is accurate in a very high percentage of circumstances to which it applies, then that is a strong indicator that the cost allocation method is just and reasonable.” FERC also found that the Complainants’ study submitted in support of their complaint was flawed because, among other things, the market efficiency analysis was based on “scenarios that are inconsistent with the normal historic operations of the Salem and Hope Creek nuclear units.” FERC also noted its prior determinations in its orders on PJM’s Order No. 1000 compliance filings that market efficiency analyses are not the appropriate metric for measuring the benefits of reliability projects in the PJM region “because such methods do not capture all of the broad regional benefits.”
In a dissenting opinion, Commissioner LaFleur stated that while she strongly supports ex ante cost allocation in general, and PJM’s solution-based DFAX cost allocation methodology in particular, “the record in this 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.” Commissioner LaFleur expressed her belief that transmission projects like the Artificial Island Project “are properly addressed through a more tailored cost allocation methodology,” and encouraged FERC to initiate a paper hearing to further develop what that more tailored methodology should consist of for projects that raise similar anomalies.
A copy of FERC’s order, and Commissioner LaFleur’s dissent, may be found here.