FERC gave final approval Thursday to the State Agreement Approach (SAA) sought by the New Jersey Board of Public Utilities and PJM that gives the greenlight for the state and RTO to build transmission to deliver 7.5 GW of planned offshore wind (ER22-902).

The commission concluded that the agreement would require all costs of the transmission to be borne by New Jersey customers, rejecting claims by PJM transmission owners that they could potentially be liable in the future. It said that the SAA protects the TOs because any such cost allocation would have to be approved by FERC.

The order gives final approval to a process that is already far advanced and that the BPU expects will conclude in the fall, either with its adoption of one or more proposed transmission enhancements or a rejection of all the submissions based on price, risk, environmental impact and other factors. The BPU had asked FERC to rule on the application by Friday.

Tying OSW to the Grid

The SAA sets up a framework by which PJM and New Jersey are granted permission to create a planning, selection and execution system for transmission improvements — in this case to respond to the expected surge in power from offshore wind projects — for which solely New Jersey customers would foot the bill. In a filing with FERC, PJM said it expects the resulting infrastructure to be in service for 30 to 40 years.

Thirteen developers submitted 80 proposals under the SAA solicitation process opened by the BPU in April 2021 and closed in September. (See PJM, NJ Staff Brief Stakeholders on State Agreement Approach). The BPU on April 12 held the final of four public hearings, in which the developers outlined their proposals and the board heard public and stakeholder comment on several issues, including grid integration concerns, the permitting and environmental issues of the proposals, and how to control the cost of the projects to ratepayers. (See related story, NJ Seeks Efficiency, Savings in OSW Transmission Process.)

Under the proposal, New Jersey would commit to paying 100% of the cost of the transmission but could seek to allocate some costs to other generation projects that use the additional capacity. The projects would be funded by a tariff authorized by FERC that would amortize the cost of the projects over their life. PJM would then allocate the costs to the utilities serving the state, who would in turn charge the cost as a transmission fee in ratepayer bills.

The state is seeking to generate 7.5 GW from offshore wind by 2035, about half of which the BPU awarded in two solicitations, with another three expected, the first of them in January. Each of the projects awarded so far — Ocean Wind 1 and 2, developed by Ørsted; and Atlantic Shores, by a joint venture between EDF Renewables North America and Shell New Energies US — included a plan to build accompanying transmission infrastructure. (See NJ Awards Two Offshore Wind Projects.)

However, the SAA offers the potential to create a network of infrastructure that could serve several projects. Developers testified in public hearings that such a system could result in lower costs to taxpayers and, in reducing the number of cables and amount of infrastructure needed, reduce the environmental impact and disruption in towns where the cables run ashore.

Future Beneficiaries

While the New Jersey Division of Rate Counsel, clean energy advocates and two offshore wind infrastructure developers filed statements of support for the SAA proposal, the Ohio Public Utilities Commission’s Federal Energy Advocate (FEA) and some PJM TOs opposed the plan, expressing concern at different elements of the cost-sharing provision. They argued that the SAA’s cost allocation rules were too broad or vague and could result in other states being charged, based on a claim that the transmission projects would provide “incremental reliability benefits to non-sponsoring states.”

The FEA said the rules are especially too broad in case one of the projects developed under the SAA is expanded to provide transmission service to neighboring states. It argued that costs should only be allocated if the future user voluntary agreed to participate in the expansion of the projects, and not simply because they receive its benefits.

PJM transmission owners also expressed concern about the cost allocation provisions.

But FERC concluded that the proposal’s language clearly states that the “BPU would be committing New Jersey customers for the cost of any SAA projects that [the] BPU elects to sponsor.”

The commission said that while it is true that the SAA leaves open the possibility that future users outside New Jersey could be charged, the agreement means that “approval by the commission of a subsequent cost allocation filing is necessary to implement such an allocation.” The BPU and PJM’s answers in response to the FEA and TOs’ concerns, “and the SAA agreement itself explain that no costs will be allocated to customers outside of New Jersey unless and until the commission accepts a future cost allocation filing as just and reasonable,” FERC said.

The section of the agreement that allows non-New Jersey users to be allocated costs “merely contemplates that future users of the SAA project could be asked to pay their fair share of costs … [that] will be defined in a future filing with the commission,” FERC said.

The commission also said that the FEA and TOs’ concerns about future cost allocations were “premature.”

“Any cost allocation to ‘future users’ is contingent on the commission reviewing and accepting a future cost allocation filing, and until any such filing is received, the SAA agreement allocating costs stands in place.”

Disagreement Between FERC’s Republicans

In a dissenting opinion, Commissioner James Danly said the language of the SAA agreement clearly states that “‘PJM shall allocate to any future user of a SAA project … a pro rata share of the total costs,’” which could be non-New Jersey users.

“The cost-sharing provision settles the single most important cost allocation detail: whether anyone besides the ratepayers in New Jersey can have the costs of a state ‘public policy’ project foisted upon them,” he wrote. “The answer to that question is ‘yes,’ the costs of a state’s pet project can be passed on to other states’ ratepayers.”

He said that the issue is important because “many in the industry have been concerned that certain states might seek to shift or socialize the costs of the transmission projects that will be required to achieve their bold (some might say ‘brash’) renewable portfolio goals to the ratepayers in other states. Now, the filed rate allows that very result.”

But fellow Republican Commissioner Mark Christie disagreed with Danly, concurring with the majority that the order makes no presumption about future cost allocations.

“The only proposal on the table now is New Jersey’s State Agreement Approach agreement, which does not allocate any costs to customers, wholesale or retail, in states other than New Jersey,” Christie wrote. “Moreover … today’s order makes clear that while the order does not attempt to answer any questions about whether any future cost allocations are just and reasonable, it does answer that such proposed allocation must be consistent with the State Agreement Approach.”

Offshore Infrastructure Options

In launching the solicitation for proposals, BPU and PJM set out a rough guiding framework of suggested elements and infrastructure improvements. They included four onshore locations on the existing grid — one in North Jersey, two in the center of the state and one in the south — that are suitable interconnection points. (See Fierce Competition in Plans to Upgrade NJ Grid.)

The board also identified several “power corridors” through which lines could run onshore from the coast to the connecting sites, and five suggested routes for cables running underwater to the shore. Finally, the BPU suggested an “offshore transmission backbone” running parallel to the coast, to which the turbines would connect and on which several substations would be sited.

The SAA proposal asked the commission to approve a variety of issues, among them to enable the BPU to assign transmission capability created by SAA projects to OSW generators selected by the BPU’s solicitation process. The application also sought approval for the BPU to allow OSW generators to be studied through PJM’s interconnection queue and grant incremental rights, if eligible, associated with any incremental transmission capability created by SAA projects. (See PJM, NJ Seek FERC OK for OSW Tx Process.)

The SAA, according to FERC, is “a supplementary transmission planning and cost allocation mechanism in PJM’s Operating Agreement through which one or more state governmental entities authorized by their respective states, individually or jointly, may agree to be responsible for the allocation of all costs of a proposed transmission expansion or enhancement that addresses state public policy requirements identified or accepted by the state(s).”

PJM proposed the SAA to comply with Order 1000’s requirement for procedures to address transmission needs driven by public policy requirements in the regional transmission planning process.