By Rory D. Sweeney

There’s more to transmission planning cost containment than simply comparing estimates among proposals, stakeholders learned last week at a special session of the PJM Planning Committee on the issue.

While all sides presented differing opinions, they also seemed to strike a conciliatory tone.

Staff highlighted procedural and process challenges of adding cost containment as a factor in decisions, including the potential impact the extra analysis would have on the timing of developing planning models. They also explained that project costs often must be considered as a range, rather than a specific number, which complicates comparisons.

LS Power’s Sharon Segner walked through the final two of four templates her company has proposed to help PJM standardize its comparison of transmission proposals based on several factors, including transparency, the strength of the cost-containment proposal and developers’ rate requirements. Her cost-cap analysis, for example, would create a checklist of attributes, and proposals would be categorized based on how many of those attributes PJM believed each one had.

“If it’s a weak cost cap, it’s essentially treated as a cost estimate,” Segner explained, noting that estimates would calculated based on the in-service year rather than at the time of the proposal.

“We want a better understanding about how PJM values cost containment. … From my company’s standpoint, we think there needs to be improvement [in the PJM comparative cost analysis] from the status quo,” she said. “There’s been a lot of good points raised by the transmission owners in saying … these projects have to meet the technical need and they have to solve the technical problem. … That is my company’s position as well.”

A series of events at January’s Markets and Reliability Committee meeting culminated in the issue going back to the Planning Committee for additional consideration and LS retaining control of the main proposal that the MRC will consider. To ensure its proposal has enough support to be implemented, LS narrowed the focus of revenue requirement caps to include just total all-in return on equity and capital structure cap proposals and removed the ability to offer caps on operations and maintenance costs. A representative for NextEra Energy supported removing the operations and maintenance cost-cap option. The proposal goes back before the MRC at its May meeting. (See “Transmission Flashpoint,” PJM Markets and Reliability Committee Briefs: Jan. 25, 2018.)

Transource Energy’s Brian Weber made a presentation that endorsed some of the LS goals but also opposed the overall proposal. He said it would put the focus on cost containment and “severely limit” what developers offer, moving PJM away from the “creative solutions” of the sponsorship model for transmission planning and toward the procurement model used in other RTOs/ISOs.

PJM’s sponsorship model is similar to that used for architecture proposals, where bidders are encouraged to develop their own creative solution to necessary criteria and staff are prepared to consider a wide range of potential factors. The procurement model is more like the bidding process for construction contractors, where the design has already been chosen and applicants are mostly competing on cost. A hybrid approach that tries to focus on both creativity and cost could limit the ability to achieve either of them.

RTO staff underscored the implication in their analysis of the changes necessary to consider cost-containment factors.

“Almost everyone else in the industry has one bucket of risks,” PJM’s Mark Sims said. “It adds a dimension to the level of analysis that PJM has to do.”

“I think the pragmatic reality of this is that developers will limit their submissions” due to their project designs being subsequently awarded to undercutting competitors, Weber said, adding that the plan “provides pretty significant disincentive to provide value” through creativity.

Erik Heinle with the D.C. Office of the People’s Counsel praised the technical creativity and asked why it couldn’t be replicated on the financial side.

“Great technical flexibility should be matched with flexibility and creativity in the cost arena as well,” he said.

“There is a difference between creativity and blind risk taking,” Weber responded. “Which risks should developers be expected to take? They should be expected to take the risks that they can control.”

Earlier in the meeting, PSEG Services’ Vilna Gaston had said she hoped that incorporating those cost-focused measures wouldn’t lead to a situation like the fatal bridge collapse in Florida on March 15. Ruth Ann Price with Delaware’s Division of the Public Advocate agreed and noted that media coverage showed the bridge contractor had several past successes along with several safety complaints.

Weber touched on this concern in his response to Heinle, noting that he has seen developers take risks in their cost-capped agreements filed at FERC and that he is confident they could not have had the time to perform the due diligence necessary to ensure they’re doing it correctly.

Building Consensus

Alex Stern with Public Service Electric and Gas presented transmission owners’ analysis of how easily the current proposals could implement design components that were previously identified. The analysis found that PJM’s original proposal could implement the principles with relative ease; however, it was vetoed at the MRC meeting in January.

Stern said he “fully respect[s]” concerns about gold-plating the system but acknowledged that “PSE&G would probably be at a competitive disadvantage because we’re not going to lower our standards for the customers of our state and anything we’re involved in … to the minimums that were set in [the Designated Entity Design Standards Task Force]. We’ll try to abide by what we believe are the right standards.”

He said a reasonable alternative would be limiting cost caps to construction costs.

“We’re not supportive of cost caps. Having said that, as part of the negotiation and consensus building, we were willing to try to consider taking that step. … I don’t like it, but I would concede … that it’s probably the one that provides bang for the buck to the ratepayer with an ability to track and achieve objectives. It’s probably the most enforceable,” Stern said, suggesting that implementing cost containment is such a big change that it should be eased into slowly.

“The sponsorship model might not be the best model for complex cost caps and there are challenges. I’m not suggesting it’s not doable; I’m suggesting there’s more challenges with it,” he said. “And that begs the question, do we change up the paradigm to facilitate broad-based cost caps recognizing there’ll be impacts to [the Reliability Pricing Model], they’ll be impacts to the [Regional Transmission Expansion Plan], there’ll be impacts to the interconnection queue … or do we start smaller and see how things work first?”

Heinle and Price urged implementing some way to standardize comparisons so their offices have a better chance to engage in the process. Price said staff in her office who don’t fully understand the process will immediately decline expensive projects, “so I need information to convince them.”

“If we compare apples to apples to apples, it becomes a lot easier,” she said. “I think most offices want to be actively involved in projects in their regions, but they need to the tools to be reasonably [informed].”

PJM’s Steve Herling said the process is already completely optimized and there is no lag time available for additional analysis on understanding and comparing values.

“There comes a time where there’s nothing left you can do. … You’ve got a fixed start time and a fixed end time and everything you add has to fit in between” to finish the annual RPM case build, he said. “We don’t believe you can fit it in the time frame you have. There is more work required than can be fit into this schedule.”

He pointed out that it might not be possible to standardize the process to show whether costs are comparative costs.

“There are going to be times when something is a little more than you need and there’s going to be times when it’s a lot more than you need. People make proposals. Our job is to figure out whether it’s a little more than we need or a lot more than we need and then figure out is the additional cost worth it,” he said.