In Docket No. ER21-2282, the PJM TOs requested that they have the option to fund Network Upgrades (transmission facilities necessary to interconnect new generation to the PJM system). The PJM TOs state that this option is necessary to ensure that the PJM TOs are properly compensated for owning and operating Network Upgrades, and this optionality is modeled after the provisions in the MISO Tariff that the Commission recently found to be just and reasonable. The PJM TOs explained that there is a sharp increase in the number of renewable generation resources interconnecting to the PJM transmission system in recent years and the growing amount of Network Upgrades necessary to accommodate those interconnection requests was the driver of the PJM TOs decision to file the Proposed Revisions to its tariff. The trend in generator interconnections is expected to continue, if not accelerate, in the coming years, and there are approximately $4.9 billion of Network Upgrades associated with generation projects that have been studied by PJM and are currently in the interconnection queue. In addition, there are more than 1,200 generation projects waiting to be studied by PJM.
The PJM TOs state in their brief filed on January 13 they are not currently compensated for the risk of owning and operating Network Upgrades, though they are compelled to own and operate Network Upgrades (the generator reimburses the TO for the cost), which produces risk without the attendant compensation. Moreover, because they receive no profit for Network Upgrades, as the amount of Network Upgrades on their system increases, the overall return for their other transmission facilities in rate base is effectively reduced. The PJM TOs state that in Ameren, the Court of Appeals for the District of Columbia expressed concern that the MISO transmission owners were required to own and operate Network Upgrades with no profit or compensation. On remand, the Commission agreed, finding that Network Upgrades present risks and the MISO Transmission Owners should be compensated for those risks. The same reasoning should apply in PJM.
The PJM TOs also state that Network Upgrades are transmission facilities and the PJM TOs face the same risks in owning and operating Network Upgrades as they do in owning and operating other transmission facilities. Accordingly, it is just and reasonable for the PJM Transmission Owners to be compensated for owning and operating Network Upgrades in the same manner that they are compensated for owning and operating other transmission facilities, including the use of the same base Return on Equity (“ROE”).
The PJM TOs state the FERC’s rationale adopted in the recent order denying funding of Network Upgrades of the NY TOs, that a utility’s risk profile of the enterprise as a whole accounts for the risks of Network Upgrades is flawed both legally as well as from an implementation perspective as the Commission’s ROE methodology is simply not designed to or capable of the precision necessary to account for the risks of individual transmission facilities in developing a risk profile used to establish a transmission owner’s ROE.
Lastly, the PJM TOs state that FERC should have no concerns regarding undue discrimination as
there are ample measures to protect against affiliate abuse concerns. Importantly, PJM
will maintain its key role in the interconnection process. In addition, the information that
the PJM TOs propose to post on the PJM website (combined with the detailed information that already exists on the PJM website) will provide significant, detailed information to allow interested parties to evaluate whether disparate treatment or undue discrimination has occurred, and to support a complaint pursuant to Section 206 of the FPA, if warranted. And the entirety of the Commission’s regulatory framework, including numerous rulemaking orders adopted over the past three decades, are in place to prevent affiliate abuse and undue discrimination.
For the PJM TO filing, go to https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20220113-5168&optimized=false.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.