Cost-Containment Provisions Discussed During Workshop


Planning Committee members reviewed details of a proposed process to memorialize how PJM considers cost-containment provisions in its evaluation of competitive transmission projects during a workshop Aug. 29.

PJM currently accepts and evaluates cost caps offered by project developers. In May 2018, stakeholders asked PJM to develop a comparative cost framework with the advice and recommendation of the Independent Market Monitor. The proposed framework seeks to standardize the treatment of cost containment in the multi-faceted evaluation process for project development.

Another workshop is scheduled Sept. 9 to consider proposed revisions to Manual 14F: Competitive Planning Process. A first read is expected to take place at the Sept. 12 Planning Committee meeting.

Once proposed projects have passed an engineering screen, PJM’s proposed cost-containment process would evaluate their financials and any proposed cost-containment measures, developing and evaluating scenarios for reasonableness, and investigating risks for constructability, financial viability, financing costs, construction costs and more, said Mark Sims, manager – Infrastructure Coordination.

Formalizing Market Monitor Consultation

The process as laid out in the proposal includes a step during each project’s evaluation to consult with Monitoring Analytics, PJM’s independent market monitor. In particular, PJM and its market monitor would run their respective financial analyses for competing projects, share results with each other and discuss potential issues. This aspect of the proposed process will likely be a focus of future discussions.

Developers may propose to limit costs in many ways, according to the proposed manual language. Caps may be proposed for annual revenue requirements, rates of return on equity, debt costs, capital costs, operations and maintenance, allowance for funds used during construction and schedule guarantees, to name a few.

“We are driving toward more detailed financial analysis,” Sims said. Proposed manual revisions reflect that cost containment “is just one input to the decision process,” he said, adding the holistic view is one in which “we communicate the assumptions we are using, run our simulations, develop scenarios and communicate with them [Monitoring Analytics], so when we get to the final side-by-side comparison … we don’t end up with something completely different because we didn’t talk along the way.”

Further review of proposed Manual 14F language, including provisions that delineate specific cooperation with the market monitor, will take place at the Sept. 9 workshop with Monitoring Analytics President Joseph Bowring, said Sue Glatz, director – Infrastructure Planning. Sims requested that committee members review and submit feedback concerning the proposed new language for Manual 14F before the Sept. 9 meeting. The Planning Committee is expected to seek endorsement in October.