By Rory D. Sweeney

Years in the making, a settlement between PJM and transmission owners over the RTO’s procedure for allocating the costs of major transmission projects is receiving criticism from stakeholders that say they weren’t invited to the table.

The case has dragged on for nearly a decade, with FERC’s orders on how to allocate costs for transmission projects at or above 500 kV twice being remanded by the 7th U.S. Circuit Court of Appeals back to the commission.

PJM’s “postage-stamp” cost allocation for the projects was challenged by the RTO’s Midwestern utilities. The method billed all PJM utilities in proportion to their load, regardless of where the projects were located.

The commission had originally approved the postage-stamp method in 2007 and attempted to justify it in its order on remand. The court, however, ruled that FERC had again failed to show how a western utility would benefit as much as an eastern utility from new transmission facilities in the east. (See FERC Orders Proceedings to Decide PJM’s Postage-Stamp Cost Allocation.)

In June, after more than a year of negotiations, a large majority of stakeholders submitted to FERC a settlement that created a cost allocation formula for projects approved prior to Feb. 1, 2013, when PJM abandoned the postage-stamp method (EL05-121).

“The overwhelming majority of the PJM transmission owners and all of the state regulatory authorities that have actively participated in this proceeding are either settling parties or have agreed not to oppose the settlement,” the filing reads.

The agreement would require collecting fees from customers on the eastern side of PJM’s territory and distributing them to customers on the western side. For projects that have been or will be completed, the settlement assigns 50% of costs on a load-ratio-share basis and the remaining 50% under the solution-based distribution factor (DFAX) methodology — the same method used for regional 500-kV projects approved since 2013.

Abandoned or canceled projects would be assigned using the violation-based DFAX method. The charges would be retroactive to Jan. 1, 2016.

Retroactive Issues

The settlement didn’t sit well with Direct Energy and the Retail Energy Supply Association, which argued they were neither invited to participate in the settlement talks through the PJM stakeholder process nor informed that they’d be expected to pay for the result.

On Monday, RESA appealed the denial of a previous motion to intervene in the case. In the appeal, the group stated that the settlement would require its members to pay their allocated share retroactively, “even if the customers who should be billed for the amounts have migrated to another supplier.”

Under deregulation, customers of the load-serving entities that make up RESA’s membership can switch companies quickly, so LSEs aren’t able to pass along retroactive charges to those who’ve left in the interim, the group said.

The denial, written by Acting Chief Administrative Law Judge Carmen A. Cintron, called RESA “a party that is uninformed of the delicate and complex negotiations that transpired in its absence.”

“When entities wait unreasonably long to seek intervention, [FERC] has stated that they ‘assumed the risk that the parties would settle the case in a manner not to their liking.’ Such is the situation that RESA’s delayed request has created for itself,” Cintron wrote.

RESA said it only became aware of the proceedings by reading the published settlement and that its suggested changes would “create minimal, if any, disruptions.”

“This is not a situation where an intervenor seeks to scuttle a settlement,” RESA said.

The group suggested two options to solve the issue: change the date for when charges should go into effect to sometime in the future, or put the burden of recovering the costs on electric distribution companies.

RESA is “hopeful” its new arguments will allow it to intervene, spokesman Bryan Lee said.

Marji Philips of Direct Energy said her company estimates the settlement will cost eastern ratepayers about $287 million.

“The LSEs are going to wind up having to pay for these costs that everybody agreed should be rate-based, and the calculation when it was originally done was done incorrectly,” she said.

Comments Pro and Con

Direct Energy and RESA are not alone in their opposition to the settlement. Linden VFT, which owns merchant transmission facilities, said it would not receive benefits in the settlement commensurate with the costs it would incur. In filed comments, Linden said the solutions-based DFAX method is “unduly prejudicial” to companies like itself.

But many stakeholders filed comments in support of the settlement.

“Pennsylvania’s ratepayers have been unfairly burdened, since 2007, with an excessive portion of those costs associated with the transmission projects encompassed by the settlement,” the state’s Public Utility Commission said. “The settlement agreement resolves those inequities and establishes a more reasonable and equitable cost allocation for both previously incurred costs as well as costs yet to be recovered.”