Court rejects FERC’s handling of transmission costs in PJM

Source: Hannah Northey, E&E reporter • Posted: Friday, June 27, 2014

A federal appeals court yesterday for the second time rejected the Federal Energy Regulatory Commission’s attempt to divvy up the cost of high-voltage power lines in the Mid-Atlantic and Midwest.

The court ruled in a 2-1 vote that FERC has failed to provide justification for why utilities in the western portion of PJM Interconnection’s footprint in the Midwest and Mid-Atlantic region should be required to contribute to the cost of power lines benefiting the region’s eastern side.

Judges Richard Posner and Daniel Tinder of the 7th U.S. Circuit Court of Appeals voted to send the order back to FERC, and Judge Richard Cudahy cast the lone dissenting vote in support of the commission.

Posner and Tinder said that utilities in the western region of PJM parts in Michigan, Illinois and Indiana are unlikely to obtain significant amounts of power from the dozen transmission projects in question, slated to cost about $2.7 billion.

Their decision comes five years after the same utilities and the Illinois Commerce Commission asked the court to vacate an earlier cost allocation plan in PJM for high voltage power lines that FERC approved in 2007. The court remanded that order in 2009, and the agency issued an order on remand that’s at the center of this week’s court ruling.

In both cases, Posner and Tinder criticized FERC’s “hand-wringing” over the difficulty of gauging the true benefits of transmission for the region while including definitive dollar amounts. The benefits the commission did cite such as reduced outages and electricity loss, they said, will not be experienced equally across the region.

“It’s been almost five years since we remanded this case to the Federal Energy Regulatory Commission,” Posner wrote for the majority. “The petitioners who persuaded us to remand the Commission’s order … are not satisfied with the order that the Commission issued on remand. For that order reinstated without change the order that we had vacated.”

But Cudahy questioned his colleagues’ request for exact numbers to quantify the benefit of grid-strengthening projects. Cost allocation, Cudahy said, is a “judgmental matter” with no “right” answers, and the court should be deferential to FERC’s analyses.

“I think the majority is under the impression that somehow there is a mathematical solution to this problem, and I think that this is a complete illusion,” Cudahy wrote. “Cost allocation, particularly at these extraordinarily high voltages, is far from a precise science, and there are no mathematical solutions to determining benefits region by region or subregion by subregion.”

Cudahy went on to say that high-voltage transmission projects are rare and bolster the entire system, serving as the “backbone of an electrical grid,” and socializing such costs across the system makes sense.

“In my opinion this will be unfortunate, since I firmly believe we should allow the FERC to be creative in addressing these unprecedented problems,” Cudahy wrote.