By Suzanne Herel
FERC on Friday approved the controversial cost allocation of two PJM projects: a stability fix for New Jersey’s Artificial Island nuclear complex and the Bergen-Linden Corridor upgrade.
“The courts have recognized that no cost allocation method can perfectly assign costs to the beneficiaries of a transmission project, particularly in the case of a transmission grid,” FERC said in its 3-1 order approving the Artificial Island allocation proposal (EL15-95. ER15-2563). “The commission found that where a cost allocation method is accurate in a very high percentage of circumstances to which it applies, then that is a strong indicator that the cost allocation method is just and reasonable.”
Commissioner Cheryl LaFleur dissented, saying, “The record in this case clearly establishes that there is a discrete and identifiable set of transmission projects as to which [the distribution factor cost allocation (DFAX)] methodology produces an anomalous result and does not allocate costs in a manner roughly commensurate with benefits.
“It is a cliché to observe that hard cases make bad law, but unfortunately I believe that is the result of today’s orders,” she said. “Because the instant cases are discrete and identifiable and have significant rate impacts that are not roughly commensurate with benefits, a failure to grant these complaints may actually undermine a cost allocation methodology that is just and reasonable in the vast majority of instances.”
The commission in November called for an inquiry in response to complaints over the allocation for the projects and held a technical conference on the issue in January. (See DFAX: ‘Poison Pill’ or ‘Best Method’ of Cost Allocation?) It asked: Is there a definable category of projects for which the DFAX method might not be appropriate, and could a fair approach be developed for those occasions?
Most commenters said that DFAX was inappropriate in some situations and that an alternative scheme should be developed. (See Commenters: DFAX Cost Allocation Inappropriate.)
The Delaware and Maryland public service commissions protested the cost allocation of the Artificial Island project, virtually all of which will be paid for by customers in the Delmarva transmission zone.
They cited a study requested of PJM by the Delaware commission that found only about 10%, or $17 million, of the $169 million annual load payment savings would accrue to customers in that zone. However, those customers will be allocated about $246 million of the costs.
Critics said DFAX is inappropriate for non-flow-based fixes, such as those addressing short-circuit violations, storm-hardening or stability limits.
Said FERC: “Comments opposing the solution-based DFAX method can only point to two projects out of over 1,200 identified by PJM as raising concerns.”
The DFAX method, the commission said, “focuses on the benefits of the facility as measured through use of the facility over time rather than the reliability violation that drove the immediate need for the project.”
In the second ruling — in which LaFleur also dissented — FERC denied a complaint from Consolidated Edison and Linden VFT and upheld the assignment of an additional $91 million in cost to Con Edison for the Bergen-Linden Corridor project (ER15-2562, et al.).
“As PJM explains, the costs related to the reconfiguration are necessary to address construction challenges and the elimination of high short-circuit current issues identified by [Public Service Enterprise Group], such as no longer reusing existing underground ducts to install new 345-kV cables and substation expansion for an additional 345-kV line,” the commission said. (See Developer Questions Need for PSE&G Projects without ‘Wheel’.)
Meanwhile, the Artificial Island project faces other hurdles. After Public Service Electric and Gas submitted estimates that nearly doubled the cost of its scope of work to $272 million, PJM planners are considering reconfiguring the project.
That, however, could alter its scope enough to require it be rebid under Order 1000. (See Artificial Island Cost Increase Could Lead to Rebid.)
The Delaware PSC did not return a request for comment. However, Bob Howatt, the PSC’s executive director, told The News Journal that the PSC is considering filing a motion for rehearing with FERC as a prerequisite for a court appeal. “The court process is not inexpensive,” Howatt cautioned.
Delaware Public Advocate David Bonar has estimated that Artificial Island could result in rate increases of about $3/month for residential and small businesses, while increasing rates for large manufacturers by “tens of thousands.”