FERC Grants Transmission incentives to NJ Offshore Wind transmission development entity

​Summary
On February 15, 2024, in Docket No. EL23-101, FERC granted Mid-Atlantic Offshore Development LLC (Mid-Atlantic) (1) recovery of prudently incurred pre-commercial costs through the creation of a regulatory asset for its investment in the Mid-Atlantic Owned Facilities (“Project”) (Regulatory Asset Incentive); (2) 100% recovery of all prudently incurred transmission-related development and construction costs if the Project is canceled or abandoned, in whole or in part, as a result of factors beyond Mid-Atlantic’s control (Abandoned Plant Incentive); (3) use of a hypothetical capital structure consisting of 50% debt and 50% equity until the Project achieves commercial operation (Hypothetical Capital Structure Incentive); and (4) inclusion of a 50-basis-point incentive adder to its base return on equity (ROE) for Regional Transmission Organization (RTO) participation (RTO Participation Incentive).  FERC noted that these incentives are being awarded to a project proceeding under the State Agreement Approach in the PJM Tariff and, as such, the annual transmission revenue requirement of the Project will be allocated to New Jersey load. 
 
Background
Mid-Atlantic is a Delaware limited liability company that is a joint venture between EDF-RE Offshore Development, LLC (EDFR) and Shell New Energies US, LLC (Shell New Energies). Mid-Atlantic states that EDFR and Shell New Energies each own a 50% interest in MAOD.
 
The NJ BPU selected the Mid-Atlantic Project as part of the larger Larrabee Tri-Collector Solution, which consists of the Mid-Atlantic Project plus the Jersey Central Power & Light Company (JCP&L)-owned onshore transmission delivery solutions to interconnect New Jersey offshore wind projects to onshore points of interconnection.  The Mid-Atlantic Project consists of a new alternating current 230 kilovolt (kV) substation (Larrabee Collector Station) and adjacent land required for future High Voltage Direct Current converter stations, which will be constructed adjacent to JCP&L’s existing Larrabee substation located in Howell Township, New Jersey (JCP&L Larrabee Substation).  The Project facilitates a single point for connecting offshore wind projects and maximizes use of available headroom at existing points of interconnection, while offering a single corridor solution preferred by the NJ BPU. Mid-Atlantic estimates its investment in the Project to be $193.5 million with an expected in-service date of December 2027.    
  
In January 2020, the State of New Jersey formally set forth its state public policy to expand the transmission system to accommodate a buildout of 7,500 MW of offshore wind generation by 2035. On November 18, 2020, NJ BPU issued an order requesting that PJM, pursuant to the State Agreement Approach, open a competitive proposal window to solicit transmission proposals to interconnect and ensure deliverability of 7,500 MW of offshore wind generation by 2035. 
On February 16, 2021, FERC accepted a State Agreement Approach Study Agreement (Study Agreement) between PJM and NJ BPU to effectuate NJ BPU’s formal request that PJM solicit transmission project proposals pursuant to the State Agreement Approach to integrate New Jersey’s planned offshore wind resources.  The Study Agreement specifies that: (1) PJM will perform planning studies to identify system improvements to interconnect and provide for the deliverability of New Jersey’s planned offshore wind generation at specific points of interconnection to the transmission system; and (2) PJM will open a competitive proposal window to solicit transmission project proposals that provide for the deliverability of New Jersey’s planned offshore wind generation.  In its order, FERC found that the Study Agreement provided transparency to stakeholders regarding the process milestones and inclusion of NJ BPU’s requested transmission in the 2020-2021 RTEP cycle.  FERC also affirmed PJM’s statement that the Study Agreement does not consent to the selection of any projects or designated entities, establish any cost allocations, or grant any transmission rights. PJM opened the competitive proposal window on April 15, 2021 and received transmission project proposals until the window closed on September 17, 2021.  On April 14, 2022, FERC accepted Rate Schedule No. 49, which is the State Agreement Approach Agreement between PJM and NJ BPU (PJM-NJ BPU SAA Agreement).  The PJM-NJ BPU SAA Agreement establishes processes for the review and selection of specific transmission projects, which may be onshore and/or offshore facilities, to effectuate New Jersey’s public policy goals.  FERC determined in the SAA Agreement Order that the PJM-NJ BPU SAA Agreement made clear that NJ BPU would be committing New Jersey customers for the cost of any SAA Projects that NJ BPU elects to sponsor. On October 26, 2022, NJ BPU issued an order on the State Agreement Approach proposals and selected 52 transmission projects.  On December 2, 2022, FERC accepted a new Schedule 12-Appendix C to the PJM Tariff that includes the cost allocation method for the New Jersey State Agreement Approach projects that NJ BPU selects and agrees to sponsor to support New Jersey state law. This cost allocation method allocates the costs of such transmission projects on a load-ratio share basis to Network Customers in New Jersey and to Point-to-Point Customers with a Point of Delivery within New Jersey.