Glazer, Herling Testify as FERC Re-examines Order 1000

Order 1000 and its challenges – including examination of cost caps and how those cost caps affect PJM’s ability to conduct its planning process – provided the basis for a two-day technical conference at the Federal Energy Regulatory Commission Monday and Tuesday.

Craig Glazer, vice president – Federal Government Policy, and Steve Herling, vice president – Planning, represented PJM on three panels. Glazer appeared on two Monday panels on cost containment provisions and how they might affect competitive transmission processes. Herling testified on a Tuesday panel which examined regional transmission planning and transmission development issues.

PJM focused on three topics – the FERC’s role in ratemaking/cost cap issues, streamlining the competitive solicitation process to exempt lower voltage facilities, and how PJM can best implement its regional transmission expansion plan in concert with cost cap.

Glazer called cost caps the “ragged edge” where planning and regulation meet. He urged the commission to examine the role of the risk allocation in the regulatory process.

“As we move into the world of choosing among competing proposals, some of which contain cost caps, there clearly is a balance that needs to be struck between the RTOs’ role and the commission’s role,’ said Glazer. “We would urge the commission to recognize that the RTOs’ true expertise lies in planning. We are not regulators, general contractors or judges. Nor do we have a field stafInsideLines_Glazerf to police project development.”

He pointed out that, of approximately 280 greenfield proposals submitted in PJM through RTEP windows (through 2015), 100 contained some type of cost cap proposal. To alleviate this, PJM suggested several reforms, including the commission possibly providing guidance that clarifies the type of costs that can be considered in a cap and the relationship to the ratemaking process.

In his testimony, Herling said that PJM is at a crossroads as it begins its third year implementing elements of Order 1000. With its sponsorship model, PJM has evaluated more than 400 competitive proposals submitted in the course of more than a half-dozen solicitation windows.InsideLines_Herling

“We have seen very positive results in terms of the range of proposed solution alternatives,” said Herling. “In particular, in our most recent long-term proposal window, we received more than 100 proposals to improve market efficiency, resulting in 16 approved projects to reduce transmission congestion.”

The implementation of Order 1000 varies widely across the country because of the differences in cost allocation practices in different regions, which exclude certain issues or solutions from competition.

“PJM believes cost allocation should not drive planning,” Herling said. “However, if the competitive solicitation process threatens the integrity of the planning process and the ability to comply with reliability criteria, then something must give.

“Either the scope of the competitive processes must be made manageable through tariff-based exclusions or revisions to cost allocation methodologies or PJM must take a step back and re-evaluate its solicitation process.”