The D.C. Circuit Court of Appeals on Tuesday upheld FERC’s 2019 ruling that directed PJM to implement a new cost allocation method for transmission projects addressing stability issues (PSEG v. FERC, 19-1091).

Public Service Electric and Gas and PPL Electric Utilities petitioned the court for review of several FERC orders concerning cost sharing for upgrades to the PJM grid after the commission directed the RTO in December 2019 to refile tariff revisions on the allocation method. FERC in 2018 had reversed its 2016 decision that approved cost allocations for the Artificial Island reliability project in New Jersey, shifting costs initially allocated to stakeholders in Maryland and Delaware to utilities in New Jersey. (See FERC Lets Original PJM Stability Method Stand.)

PJM transmission owners and New Jersey agencies argued that the commission’s reversal of the 2016 order was “inadequately explained, lacked substantial evidence and improperly focused on assigning costs to violators rather than beneficiaries.” The petitioners also asserted that the 2018 order was inconsistent with Order 1000 and that FERC “failed to respond meaningfully” to the arguments against rehearing.

FERC, which was supported by stakeholders in Maryland and Delaware, maintained that it “engaged in reasoned decision-making.”

“We conclude the commission reasonably decided to adopt a different cost-allocation method for the type of project at issue here and adequately explained its departure from the cost allocations it had approved in 2016,” the court found in denying the petitions for review.

Because the dispute centers on the commission’s exercise of its rate-setting authority, the court said it was “particularly deferential” to FERC’s determinations.

The petitioners and New Jersey agencies challenged FERC’s decision to grant rehearing of the 2016 order on three grounds, particularly contending that the commission “failed to adequately justify” its finding that the solution-based distribution factor (DFAX) method was unjust and unreasonable when applied to the Artificial Island project. (See FERC: Stability Deviation Method Best for Artificial Island.)

PJM assigns 50% of the costs of regional facilities (500-kV lines or higher and double 345-kV lines) and “necessary” lower-voltage facilities required to support regional lines on a load-ratio share basis for reliability projects, while the remaining 50% of costs is allocated using DFAX.

FERC originally determined using the methodology that 93% of the $280 million Artificial Island project cost would have gone to Delmarva Power & Light. But the commission later agreed with Maryland and Delaware utility regulators, determining that while Delmarva customers would use new transmission lines from the Artificial Island project, the utility neither caused the need for the lines nor benefited from the flows.

“As the commission explained in the 2019 order, although the Delmarva zone ‘will use the Artificial Island project as measured by the solution–based DFAX method,’ it would not actually derive any benefit from those flows … because its transmission system already was adequate to serve its load,’” the D.C. Circuit said. “Petitioners’ contentions therefore provide no basis to set aside the commission’s decision to grant rehearing of the 2016 order.”

The petitioners also contended that FERC’s reversal was contrary to Order 1000 and that it “failed to meaningfully respond to their arguments in support of the solution-based DFAX method and in opposition to reopening the record.”

“None of these challenges has merit,” the court said.