By Rich Heidorn Jr.

BALTIMORE — Delaware Public Service Commission Chairman Dallas Winslow took on PJM planners over the Artificial Island project and rival developers sparred over the enforceability of cost caps at a panel discussion on Order 1000 implementation at last week’s Organization of PJM States Inc. annual meeting.

Opening up the session, PJM Vice President for Planning Steve Herling talked about how Order 1000 has increased planners’ workload and noted how cost allocation, “previously an end result of the process, is now getting fed into the process at the beginning.”

A slide in Herling’s presentation elaborated, saying that stakeholders are attempting “to influence our decision-making based on who will pay rather than which project is the most cost-effective.”

That didn’t sit well with Winslow. “I’m not sure a project can be cost-effective if it doesn’t cost the appropriate parties the burden of what they’re benefitting from,” he said.

Winslow called for a show of hands from other state regulators, asking: “What state in the room here would agree to pay voluntarily a cost allocation that made you pay 80% of the cost when you got 20% of the benefit?”

No one raised their hand.

While he didn’t mention the project by name, Winslow’s comments were a clear reference to the dispute over the cost allocation for the Artificial Island stability project.

Because the project is considered a lower-voltage facility, the cost of LS Power’s plan — running a new 230-kV circuit from Salem, N.J., under the Delaware River to a new substation near the 230-kV corridor in Delaware — is being allocated almost entirely to Delaware and Maryland customers.

In an Oct. 9 filing in response to complaints from those states, PJM acknowledged that the cost allocation may “appear disproportionate” but took no position on whether FERC should reconsider the use of solution-based distribution factor (DFAX) methodology for divvying up the bill on such projects (EL15-95). (See PJM: Artificial Island Cost Allocation Appears ‘Disproportionate.’)

Winslow called on PJM and its stakeholders to address the equity issues he said were raised by the dispute.

“There are times when you’ve got to stand up and say ‘is this is fair or not?’” Winslow said. “Should we just kick it down the road to Washington D.C.? Or should there be a mechanism to address what clearly and objectively is a violation of law?”

Cost Cap

Last year, PJM planners recommended Public Service Electric & Gas be selected to construct a different solution for Artificial Island. PSE&G’s winning proposal was estimated at $1.066 billion before planners eliminated two 500-kV lines from it.

Facing a barrage of criticism, PJM’s Board of Managers rejected the proposal and reopened the project, allowing PSE&G and two other finalists to revise their proposals in response to LS Power’s offer to cap its project cost at $171 million — $40 million to $90 million less than the PSE&G project.

After months of additional study and debate, the board awarded the project to LS Power, with smaller portions of the work to be done by PSE&G and Pepco Holdings Inc. (See PJM Board OKs LS Power’s Artificial Island Project Despite Objections.)

The bitter feelings over that battle were apparent at the panel discussion as Jodi Moskowitz, senior director of transmission development and strategy for PSE&G, suggested a developer might be able to recover costs above its cap if it can be shown to have acted prudently.

“FERC has yet to approve a cost cap coming out of an Order 1000 process. So we’re not sure at this point if cost caps are in fact legally enforceable,” she said.

She noted that ITC Holdings has asked FERC for guidance on whether a cost cap constitutes a just and reasonable rate. Because the commission hasn’t ruled, she said, “it is still very much an open question.”

LS Power’s Sharon Segner insisted the cap it agreed to was enforceable, saying it will be included in the designated entity agreement with PJM.

Workload Increasing  

Herling said the volume of transmission proposals unleashed by Order 1000 has strained PJM’s resources.

“Most reliability projects — 90% or more — are solved by relatively simple upgrades to existing infrastructure. And we would typically have worked in a collaborative fashion with the transmission owner to identify one or two options to solve that problem,” he said. “Now we’re getting four, five, six — as many as 26 — proposals to solve a given problem.”

Herling said it added to the workload of not only the planners conducting the analyses but also the RTO’s legal and finance staff, who help administer the process.

Herling noted that CAISO and SPP have sought to reduce the workload by eliminating the sponsorship approach: “Simply pick the best solution and put it out for bid.”

But he said PJM wasn’t willing to abandon the sponsorship model yet. “We see a lot of value in the sponsorship process,” he said.