Regulators defend PJM plans for distributing project costs

Source: Hannah Northey, E&E reporter • Posted: Wednesday, April 4, 2012

Federal energy regulators are defending their approval of plans to spread the cost of new high-voltage transmission lines in the mid-Atlantic and Midwest as a means of preventing blackouts and saving billions of dollars a year.

The Federal Energy Regulatory Commission issued an order Friday reaffirming support for PJM Interconnection’s practice of spreading the cost of new power lines among utilities in 13 states and the District of Columbia. FERC expects the plan to save the region $2.2 billion annually.

FERC’s ruling responds to a 2009 decision from the 7th U.S. Circuit Court of Appeals that found the agency had not provided enough information or justification for authorizing PJM’s plan. Although FERC didn’t have to “calculate benefits to the last penny, the commission cannot authorize a pricing scheme that requires utilities to pay for projects with “no benefits, or benefits that are trivial in relation to the costs,” the court said.

The agency is at the forefront of a national debate over costs and siting associated with long-distance power lines needed to support the country’s electric grid, renewables and “smart grid” technology.

FERC said the high-voltage power lines are needed to boost overall electric reliability and decrease congestion costs. The large power lines are also better suited to handle voltage anomalies that trigger power outages (Greenwire, Jan. 30).

FERC also pointed out that construction of high-voltage lines will support expanded renewable energy in remote sections of PJM’s footprint. Developers were requesting permission to connect up to 40,000 megawatts of wind generation to PJM’s system at the end of January, according to FERC documents.

Republican FERC Commissioner Philip Moeller said it is difficult to put a price tag on electric reliability and some areas of the country may perceive an advantage to halting projects or litigating the amount they should pay. But without long-distance lines, consumers could be forced to rely on costlier, local generating plants that may not be economical in the face of massive power outage, he said.

“The benefits of avoiding one blackout can far exceed the entire cost of a transmission line,” Moeller said in a statement.

PJM has approved transmission projects that are expected to eventually pay for themselves by reducing congestion costs. Among the approved projects is the $1.2 billion Trans-Allegheny Interstate Line (TrAIL) that connects southwestern Pennsylvania to West Virginia and Northern Virginia. The TrAIL line and other transmission upgrades across PJM could save the region about $1 billion dollars in congestion costs by 2013, he said.

“This means that power lines that will be paid for over decades could pay for themselves within a few years,” Moeller said.

‘Regions in the driver’s seat’

John Norris, a Democratic FERC commissioner, said the agency had a “legal obligation” to respond to the court’s remand, but the decision does not determine how PJM or other grid operators will comply with Order 1000.

FERC approved the rule last year to promote a more seamless nationwide transmission grid, remove barriers and bottlenecks in the flow of electricity from state to state and require regional planners to consider policies such as renewable portfolio standards.

Unlike the agency’s direct role in responding to the court over PJM’s plan, Norris said Order 1000 “puts the regions in the driver’s seat, empowering stakeholders to work together to develop planning processes and cost-allocation methodologies that work best for them.” PJM and its stakeholders should consider a wide array of mechanisms for allocating costs associated with new projects, he added.

But PJM’s case reflects difficulties FERC and transmission planners may face going forward.

Jim Hoecker, former FERC chairman and counsel to WIRES, a coalition of transmission providers and vendors, said cost-allocation plans can face legal scrutiny.

“It takes a long time to work through this and come up with a solution that won’t be torpedoed by a court,” Hoecker said.

In the Midwest, a coalition of transmission customers and Michigan Attorney General Bill Schuette (R) filed a lawsuit last year against Midwest Independent Transmission System Operator’s plan to allocate the cost of new lines.

The group said MISO has failed to show benefits are “roughly commensurate” to costs associated with new projects and that limitations need to be imposed on costs until the costs are dispersed, namely in Michigan (ClimateWire, March 9).

The Coalition for Fair Transmission Policy said it supported broadly spreading the costs of new transmission lines if they offer increased electric reliability. But the group, which has repeatedly called on FERC to better define what constitutes a “benefit,” said such a regional approach should not be used to finance expensive, long-distance interstate lines that could force consumers to pay for projects that yield few benefits.

“For lines that do not address reliability needs, beneficiaries should pay in proportion to the benefits received,” the group said.