On November 27, 2018 in Docket ER18-2350, FERC accepted, subject to refund for revisions related to a remand, PJM’s proposed cost allocation for 60 new transmission projects (reliability projects). Reliability projects include Regional Facilities, Necessary Lower Voltage Facilities, and Lower Voltage Facilities.
PJM utilizes a hybrid cost allocation method for Regional Facilities and Necessary Lower Voltage Facilities - 50 percent of the costs are allocated on a load-ratio share basis and the other 50 percent are allocated based on the solution-based distribution factor (DFAX) method. PJM allocates the costs of Lower Voltage Facilities using the solution-based DFAX method. Notwithstanding, reliability projects that are included in the Regional Transmission Expansion Plan (RTEP) solely to address local planning criteria are allocated to the zone of the individual transmission owner. PJM proposed that 1) the costs of 27 transmission enhancements that operate as Lower Voltage Facilities be allocated pursuant to the solution-based DFAX method; 2) the costs of 15 transmission enhancements with investments of less than five million dollars be allocated to the Zone where the enhancement is located; 3) the costs of four transmission enhancements that address individual transmission owner needs be allocated to the Zone of the individual transmission owner; 4) the costs of nine transmission enhancements that operate at or below 200 kV be allocated to the Zone in which the enhancement is located; and 5) the costs of five transmission enhancements needed to address spare parts, replacement equipment and circuit breakers be allocated to the Zone in which the enhancement is located. Dominion and Old Dominion Electric Cooperative (ODEC) protested the proposed assignment to the Dominion Zone of 100 percent of the cost responsibility for three projects as the three projects are high-voltage projects which were included in the RTEP and it is arbitrary, unjust, and unreasonable for the Commission to allocate 100 percent of the costs of these projects to the Dominion Zone. Dominion and ODEC also state that the allocation of the costs of high-voltage transmission facilities to the zone of the transmission owner has been under review in the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court), and on August 3, 2018, the D.C. Circuit Court found that the Commission acted arbitrarily and capriciously by accepting the cost allocation methodology for Regional Facilities addressing local planning criteria and remanded the orders to the Commission for review. Dominion and ODEC do not allege that PJM incorrectly applied its Tariff, but instead challenge the cost assignment provisions of the Tariff itself. As a result, FERC accepted the proposed cost allocations but made its order subject to refund subject to revisions related to the remand.
On November 27, 2018 in Docket ER18-2514, FERC approved a request by MISO and the MISO Transmission Owners to change the cost allocation for Targeted Market Efficiency Projects (TMEP). TMEPs are interregional transmission projects that address historical congestion along the MISO-PJM seam and are low cost, high value transmission projects intended to reduce historical congestion on known Reciprocal Coordinated Flowgates. TMEPs benefit customers and improve coordination between MISO and PJM. For an upgrade to qualify as a TMEP, the upgrade must: (1) address historical congestion on a known Reciprocal Coordinated Flowgate; (2) have an estimated in-service date by the third summer peak season from the year in which the project is approved; (3) have an estimated installed cost of less than $20 million; and (4) have been recommended by the Joint RTO Planning Committee approved by the boards of MISO and PJM. Currently, MISO’s share of TMEP costs is allocated to MISO Transmission Pricing Zones in proportion to each zone’s share of the relative positive congestion contribution benefits from the TMEP. The formula used to calculate the benefits of a TMEP identifies the nodal congestion contribution for each load node as the product of: (1) the marginal value of relieving a particular constraint (i.e., the Shadow Price) at the Reciprocal Coordinated Flowgate, (2) a measure of the load’s contribution to congestion in the day-ahead and real-time markets at the load node to the Reciprocal Coordinated Flowgate (i.e., the shift factor), and (3) the amount of load served at that node. MISO and the MISO TOs propose three changes to the cost allocation for TMEPs: (1) incorporate generator nodes in the determination of the congestion contribution, rather than considering only load nodes; (2) aggregate the load node and generator node congestion contributions; and (3) discontinue applying the formula to all five-minute dispatches in the real-time market, so that the formula would apply only to the hours in the day-ahead market in which the Reciprocal Coordinated Flowgate experienced congestion. MISO and the MISO TOs state that the proposed changes 1) would improve the alignment of costs and benefits and improve transparency in calculating the cost allocation; 2) would create a more accurate match of benefits and costs; 3) would ensure that there is no involuntary allocation of costs to non-beneficiaries; and 4) would better define the beneficiaries of avoided congestion and allocate the TMEP upgrade costs more accurately than adding generator sensitivities alone. Additionally, removing the use of the real-time data has minimal effect on the cost allocation for TMEPs and simplifies the overall calculation effort. All filers supported the proposed changes to the TMEPs, and FERC accordingly approved these changes.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates.