A federal court has ruled that the Pennsylvania Public Utility Commission violated the Constitution’s Commerce Clause in denying Transource Energy a certificate of public convenience to construct the Independence Energy Connection (IEC) transmission project, ruling that the rejection was rooted in economic protectionism rather than siting concerns (1:21-CV-01101).
To proceed, however, the project will have to clear a new PJM benefit-cost analysis that considers other transmission projects approved in the last several years. (See Transource Challenges Pa. PUC Decision in Court.)
“After carefully considering defendants’ arguments, the court is not persuaded that the PUC’s decision was, in substance, about siting. Much of defendants’ argument attempts to deconstruct PJM’s analysis, following FERC-approved methodology, for assessing the project. Defendants’ argument picks apart the FERC-approved methodology and whether it was sufficiently open, allowed for evidentiary hearings, permitted cross-examination or allowed argument by interested parties. But in making these arguments about the various flaws in PJM’s analysis of the need for the project, defendants have not provided a substantive basis for this court to conclude that the PUC’s decision actually related to siting as opposed to determining whether there was a need for the project,” Judge Jennifer Wilson wrote for the U.S. District Court for the Middle District of Pennsylvania in a decision released Dec. 6.
The project is aimed at alleviating congestion on PJM’s AP South interface by constructing two 230-kV lines between Ringgold substation in Washington County, Md., to the Rice substation in Franklin County, Pa., and between the Conastone substation in Harford County, Md., to the Furnace Run substation in York County, Pa.
The PJM Board of Managers approved the project in 2016, stating that it was the most cost-effective way of addressing congestion in Virginia, Maryland, D.C. and western Pennsylvania. (See “Transource Re-evaluation,” PJM TEAC Briefs: Nov. 30, 2021.)
The Maryland Public Service Commission also approved the Maryland sections of the project in June 2020 in a settlement that included a reconfiguration of the Harford County section of the project to run in an existing Baltimore Gas and Electric right-of-way.
Due to the denial and Transource’s subsequent litigation, the PSC has granted the company and BGE a series of extensions on the deadlines for beginning and completing construction of the lines.
On Dec. 13, the PSC approved a third extension, to Dec. 31, 2024.
Similar extensions have also been approved for another component of the IEC, a Potomac Edison rebuild of an existing single-circuit 138-kV transmission line to a 230-kV transmission line between the Ringgold and Catoctin substations in Frederick and Washington counties, Md. Speaking at the PSC meeting Dec. 13, J. Joseph Curran III, an attorney with Venable and counsel for Transource, said the litigation was the primary driver of the extension requests.
The PUC defended its May 2021 decision to deny siting and eminent domain permits by arguing that the benefit-cost analysis PJM conducted didn’t address all the requirements for a project deemed to be necessary under state law and didn’t take into account the full breadth of costs — namely the increased rates some will pay should congestion be alleviated.
PJM’s market efficiency process considers whether the reduction in rates attributed to the project would outweigh its construction costs at a 1.25-to-1 ratio. In a 2020 reanalysis of the project, PJM estimated that it would reduce congestion costs $845 million and cost $509 million to $528 million, which would be assigned to ratepayers in the regions benefiting from the reduced congestion. (See Transource Tx Project Rejected by Pa. PUC.)
Transource argued that the commission was seeking to preserve the cheap power enjoyed in some areas at the expense of others without access to that energy due to congested lines. The company told the court that if states were to be permitted to reject projects on the basis that they don’t benefit their ratepayers, it would defeat the purpose of transmission planning aimed at alleviating congestion resulting in regional price disparities.
“If states could override FERC by applying a conflicting method for determining need, solely to preserve the benefits of congestion for their own citizens, that would eviscerate FERC’s ability to plan the interstate transmission grid in an efficient and fair manner,” Transource said in court documents.
The court rejected the PUC’s jurisdictional arguments, stating that the federal government’s interests go beyond planning projects and extend to seeing that they are built, with the states’ role focused on enforcing local siting, environmental and public safety regulations.
“The PUC is attempting to supplant the role of the RTO and expand its state authority into the regulatory territory occupied by the federal government. If permitted, the PUC’s second-guessing of the methods sanctioned by federal law and employed by the RTO would severely handicap the ability of FERC to ensure just and reasonable rates. Because the PUC’s decision presents an obstacle to achieving federal objectives, it is conflict preempted and violates the Supremacy Clause,” the court wrote.
The commission also argued that the congestion had decreased since 2014 and the project’s benefits would be lower than presented in PJM’s 2016 approval of the IEC project. The benefits would be further diminished, the commission said, if the benefit-cost analysis included the increased rates that might manifest once the congestion was eliminated.
PJM Re-evaluates
While welcomed by Transource, the federal court decision does not mean IEC is out of the woods. First, the PUC has 30 days to file an appeal, and some local permitting remains.
However, Hector , senior counsel for American Electric Power, which partnered with Evergy to form Transource, told the PSC on Dec. 13 the IEC projects are “very mature at this point. Materials are in the United States, and they are specific for the project. They are already in hand. The transformers, which are long-lead items, are already in the United States as well. … They were acquired at a time prior to now; so, the price for that type of equipment has increased since then.”
added that 70% of the rights of way for the projects have been secured, as well as rights for substations in Pennsylvania. Pending final approvals from the PUC, construction could take 12 to 18 months, he said.
’s optimism was somewhat tempered by William Fields, deputy people’s counsel in the Office of the People’s Counsel, who cautioned that PJM will be re-evaluating IEC in the spring of 2024 to consider whether it is still cost-effective and necessary “because of all the tremendous activity going on in this general area of the grid.”
Since IEC was originally approved, New Jersey has selected its first projects under its state agreement approach with PJM, intended to start building out the transmission needed for offshore wind projects, and the PJM board approved Window 3 projects for its Regional Transmission Expansion Plan (RTEP) on Dec. 11.
PJM filed a waiver request asking FERC for more time to complete its required annual reanalysis of the project in November due to how the RTEP projects could interact with the project.
“Performing a reevaluation of the Transource IEC Project before year end with a base case that does not resolve the 2022 RTEP Window No. 3 reliability violations will produce incomplete results until the market efficiency model is updated for reevaluation purposes, which will frustrate PJM’s ability to provide meaningful updates to the [Transmission Expansion Advisory Committee] and the PJM Board. Either way, performing an analysis on incomplete data is an inefficient use of PJM engineers’ time,” the waiver request argues.
The waiver request states that PJM staff will need about three to four months to prepare a base case including the approved RTEP projects to run the analysis on whether the IEC project continues to pass the benefit-cost threshold. It asks that FERC extend the deadline for the analysis to the second quarter of 2024.
PSC members also raised concerns about the potential closing of the 1,238-MW Brandon Shores coal-fired plant outside Baltimore. PJM has said taking the plant offline in 2025, as planned by owner Talen Energy, could result in “degraded grid reliability.”
Commissioner Michael T. Richard queried Fields on whether OPC or PSC staff have “had a chance to hear from PJM about how this cluster of [IEC] projects interacts with these other projects, and really, if they are still needed and cost competitive.”
“We don’t know exactly where PJM is going to be on that,” Fields said. “But it seems a good chance that [the IEC projects] have been overtaken by events from these other activities. I think the real question is going to be, in the spring, when PJM runs the power flow models … [will] they look and say, ‘How much is this going to save in market prices over the future, from that point on?’ And you compare that to the cost of the project.”
Fields told RTO Insider his office would support the project if it continues to promise the benefit-to-cost ratio PJM has projected in the past. However, he noted that it was approved years ago and the grid in that region has seen a lot of change.
“There’s been a huge amount of activity in this part of PJM with respect to new transmission that’s already been built, transmission that’s planned to be built, generation retiring and I think it’s an open question whether when PJM reevaluates the costs and benefits of this plan, if it’s still going to be beneficial in reducing customers’ energy bill,” he said.
