By Christen Smith
Stakeholders reminded PJM on Thursday to tread lightly when it comes to determining the “reasonableness” of estimated construction costs as the RTO works on revisions for Manual 14F that will include its new fee structure for competitive transmission proposals.
The revisions, borne out of a stakeholder motion endorsed by the Markets and Reliability Committee last year, will codify the comparative cost framework the RTO will use to evaluate these projects. (See “PJM Unveils Flat Fee Cost-containment Plan” in PJM PC/TEAC Briefs: Aug. 8, 2019.) Since implementation of FERC Order 1000 in 2014, PJM has reviewed 850 competitive proposals, of which less than 20% included cost commitment provisions.
Transmission owners, in particular, took issue with PJM’s revisions in Section 8.4.3 that read “if a project proposal does not include a cost commitment provision, PJM will assess project specific risks (for example, the risk of a proposed project’s estimated costs being exceeded), scope of the project, magnitude of the proposed cost and the reasonableness of the estimated construction costs.”
“We still have some concerns with your language,” said Alex Stern, manager of transmission strategy for Public Service Electric and Gas. “A bedrock principle that the special TEAC’s coalesced around several years ago is that PJM is not and should not be suggested in any way to be a rate regulator.”
Stern was speaking on behalf of most of the TO sector, who collectively had initially conceived of presenting their own Manual 14F revisions but backed off the idea in favor of finding consensus with PJM instead.
Sharon Segner, vice president of LS Power, agreed with Stern, telling PJM “reasonableness should be cost-effectiveness.”
“I don’t think you need to put yourself in the place of judging reasonableness in that way,” she said.
Mark Sims, PJM’s manager of infrastructure coordination, said staff has no interest in influencing what costs are considered “reasonable.”
In a similar vein, Stern and other TOs found fault in supplemental revisions to PJM’s language from the Independent Market Monitor that would encourage a cap on operational and maintenance (O&M) costs.
“I just don’t think its good policy for PJM or anyone to support limiting O&M,” he said. “I’m not saying if the developer wants to limit it that they should be prevented from doing so … I just don’t think a reliability organization should be overtly encouraging entities to cap the O&M.”
David “Scarp” Scarpignato, of Calpine, agreed and suggested PJM focus more broadly on whether a proposal “met its cost commitments.”
“I don’t think you guys are in the regulating business itself, so I don’t think you should, even if you could, determine if the rates are correct in the end,” he said.
Joe Bowring, PJM’s Independent Market Monitor, defended his set of proposed cost caps, saying “it’s real, so it should be included in the list.” He also said PJM should consider, in the absence of a cost commitment provision, the “review of project specific risk, and reasonableness of each component of costs including the initial capacity costs, the annual revenue requirements and the cost of capital.”
“You need a metric that people know you are going to use,” he said. “If it’s not revenue requirement, then there’s no standard and no point of doing an analysis.”
TOs also questioned the appropriateness of manual revisions that would memorialize an ongoing collaborative role between the PJM and IMM in reviewing competitive transmission proposals.
“PJM’s manual should not proscribe what the Market Monitor can and cannot do and, perhaps equally as important, what PJM can and cannot do in coordination with the Market Monitor,” Stern said. “The IMM is not necessarily supposed to be tightly coordinated with PJM. It is supposed to be independent and is supposed to monitor and is free to perform any independent analysis that it wants or none.”
PJM will bring the proposed fee structure and the Manual 14F revision to the MRC on Oct. 31 for a first read. Endorsement is slated for Nov. 14 at the PC and Dec. 5 at the MRC.