By Rory D. Sweeney and Rich Heidorn Jr.

In a potential victory for merchant transmission developers, a FERC administrative law judge has concluded that PJM’s system impact study (SIS) process is unjust and unreasonable because of a lack of transparency (EL15-79).

ALJ Philip C. Baten’s Jan. 19 initial decision ordered PJM to reinstate three interconnection queue positions he said were unfairly eliminated when developer TranSource refused to pay for a facility study, the next stage of its interconnection process after the SIS. He also ordered the refund of TranSource’s SIS application fees.

Baten dismissed several other remedies TranSource — not to be confused with Transource Energy, a joint venture of American Electric Power and Great Plains Energy — sought, including its claim for $63.6 million in “lost business” opportunities. Parties have 30 days to file exceptions to Baten’s decision.

PJM spokesman Ray Dotter said the RTO will challenge the ruling.

“We have concerns about the judge’s proposed remedy to put the project back into the planning queue because it would be disruptive to other interconnection customers with pending projects,” he told RTO Insider. “PJM has looked at and revised its processes. We have made great progress on the identified transparency points. As the next step in the proceeding, we will file with the commission a brief on exceptions to the initial findings.”

Inflated Costs?

TranSource filed a complaint in June 2015 contending that PJM and transmission owners Public Service Electric and Gas, PPL, Jersey Central Power & Light and Delmarva Power & Light inflated the cost of upgrades necessary to approve three requests for incremental auction revenue rights (IARRs). (See Transmission Developer: PJM TOs Inflating Upgrade Costs for ARRs.)

Baten said he could not determine whether the $1.7 billion in upgrades PJM identified were indeed necessary, noting that the case focused on the impact studies, which are supposed to produce only “good faith” cost estimates.

But he sided with FERC trial staff in faulting PJM for failing to provide transparency throughout TranSource’s efforts to secure IARRs for making upgrades that would reduce congestion on the transmission grid.

TranSource’s upgrade proposals used facility ratings from FERC Form 715 filings made by PJM on behalf of the TOs. Baten said that was a “reasonable” assumption based on “statutory and regulatory provisions” and language in PJM’s Tariff.

But the RTO testified its cost estimates were based on the line ratings expected at the time that the project being studied would be in service — including planned upgrades.

PJM’s estimates also incorporate the host TO’s review of limiting elements based on the methodologies they file under NERC reliability standard FAC-008-3. The methodologies are not public and not the same as those used for Form 715, Baten said.

A TranSource witness, electrical engineer Dale Douglass, testified in the case that FirstEnergy’s FAC-008-3 ratings methodology was “clear and logical” but that the other three TOs did not clearly specify the maximum conductor temperature used to determine the line ratings.

“For some years the commission has fostered policies to pry open the transmission grid to greater competition. … The commission does recognize that interconnection customers should be able to reasonably estimate their cost before entering the queue,” Baten wrote. “Nowhere in the PJM [Open Access Transmission Tariff], Operating Agreement, or manuals or any written manifestation, which may be presented to outside parties, does PJM explain or indicate that the FERC Form 715 ratings are not used to process IARR requests. … The evidence is sufficient to show that TranSource was not advised of these parts of the model within a time frame to afford it the opportunity to make sound business judgments.”

Readington-Roseland Line

A primary conflict was over estimates for upgrading PSE&G’s Readington-Roseland 230-kV line in New Jersey.

PJM’s analysis of transmission upgrade requests under Tariff Attachment EE is done in two steps. The SIS provides developers with an estimate of what their plan will cost with +/- 40% accuracy.

The first component of the SIS is the simultaneous feasibility test, in which PJM tests whether the developer’s IARR request can be accommodated without diminishing the income of the current ARR holders. After that, PJM identifies the facilities that are impacted by the IARRs and the relevant TOs conduct “desk-side” studies — so called because they do not involve site visits — using the confidential methodology to identify upgrades needed to accommodate the IARRs and their estimated cost.

If the developer chooses to proceed based on the SIS results, PJM conducts an in-depth facilities study that requires a refundable deposit of at least $100,000 and is supposed to provide a more accurate itemization of required upgrades.

A facilities study done for Exelon in late 2014 pegged the cost to repair the Readington-Roseland line at about $14.2 million. Although the towers had been in service for 80 years, “based on visual observation only, tower replacements are not anticipated,” the study said.

But an SIS done for TranSource six months later increased the estimate more than nine times to nearly $126.5 million. When Richard Crouch, a PSE&G electrical engineer, reviewed the project three months later, he called for a complete wreck and rebuild for more than $142.7 million, a $16 million increase that he couldn’t adequately explain, the decision said. In his testimony, Crouch said he based his replacement decision on his “institutional knowledge” of the conditions of several other lines that are similar in age and terrain, which he used as surrogates in his own “desk-side” study.

By 2016, PSE&G engineers had put the line on its list of facilities violating the company’s Form 715 end-of-life criteria.

“If the line had such a dire status by 2016, it could not have been in a better condition in 2014 when the [TranSource study] began. The FERC Form 715 of that earlier period should have noted the condition,” Baten wrote. PSE&G “did not timely report the end-of-life condition of this line on FERC Form 715.”

“PSE&G follows the FERC-approved PJM process for all planning decisions, including with regard to the facilities discussed by Judge Baten in the TranSource decision,” spokesman Mike Jennings said.

TranSource contested the SIS for Readington-Roseland and its other requested upgrades, saying it lost financing because of what it called PJM’s “badly inflated” estimates. The RTO eliminated TranSource’s queue positions when it refused to pay for the studies.

Unduly Discriminatory

Baten ruled that the lack of transparency in PJM’s SIS process made it “unduly discriminatory” to merchant developers by depriving them of business opportunities. He noted that, because IARRs were implemented in 2007, only two projects out of 100 submissions under two separate Tariff sections have been awarded IARRs.

The judge said that trial staff generally sided with PJM in the case, but that a staff witness, economist C. Shelley Norman, agreed that “PJM’s process for reviewing and evaluating IARR requests was significantly lacking in clarity and transparency.

“Even PJM’s witness David Egan [manager of the Interconnection Projects Department] agreed during his deposition,” Baten added.

“PJM’s lack of clarity and transparency in its IARR study process has likely caused systemic issues and contributed to the low completion rate of successful merchant IARR projects,” wrote Baten, who noted the record included hundreds of pages of email correspondence between TranSource and the RTO between June 2013 and March 2015. PJM’s “dribbling out of piecemeal information over time … is not consistent with the level of transparency that the commission orders have envisioned. … These obvious failures in this case are indicative of a severely flawed SIS process.”

Revised IARR Manual

During the hearing in the case, PJM and its Independent Market Monitor developed a manual detailing the procedures that the RTO followed to determine the TranSource upgrades. Baten said that although the manual was intended to improve transparency, it “does not provide any methodologies that the TOs use or will use to rate their facilities when they get the request from PJM to determine the extent and any necessary upgrades to meet an IARR request.”

Because the manual was not litigated at the hearing, Baten said he could not rule on whether it is sufficiently transparent.

“The commission on its own motion may order that PJM should offer the manual to a stakeholder process for proper vetting. At this point, the manual represents the efforts of PJM and the IMM to clarify the IARR process. On its face it does neglect a discussion of the role of the TOs in the process. More flaws could be undiscerned at this point in its development.”

Two-Stage SIS?

The judge rejected as beyond the scope of the docket TranSource’s request that PJM add another phase of impact studies before the facilities study so that requests by merchant transmission developers are handled in the same manner as requests for generation interconnection studies. Baten said the commission “should consider” TranSource’s request. PJM’s Planning Committee began a discussion on whether an additional study phase is necessary in September. Tariff revisions, which include replacing an initial study for projects with a feasibility study prior to an SIS, were approved by the Markets and Reliability Committee in December and the Members Committee in January. PJM plans to present additional manual revisions at Thursday’s Planning Committee meeting. (See “Interconnection Study Process to be Rearranged,” PJM Planning/TEAC Briefs Oct. 12, 2017.)