FERC Orders Rehearing on Artificial Island

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On July 19, 2018, the Federal Energy Regulatory Commission issued an order directing a paper hearing proceeding requesting additional information to help determine a just and reasonable ex ante cost allocation methodology for transmission facilities in PJM that address stability-related reliability projects, such as Artificial Island.

Background

The Delaware and Maryland state commissions filed a complaint against PJM, challenging its use of a solution-based distribution factor (DFAX) method to assign cost responsibility for a portion of the Artificial Island project as unjust, unreasonable, and unduly discriminatory and preferential. By order dated April 22, 2016, the Commission denied the complaint.

A group including the state commissions from Delaware and Maryland, the Delaware Public Advocate, Maryland’s Office of People Counsel and the Delaware Municipal Electric Corporation filed requests for a rehearing challenging the April 2016 order, leading to the new July 19 order.

Reversal

In the July 19 order, the Commission reversed its April 2016 decision and granted the rehearing. The commission found it unjust and unreasonable to apply PJM’s solution-based DFAX cost allocation methodology to regional facilities, necessary lower voltage facilities, and lower voltage facilities such as Artificial Island that address stability-related reliability issues.

Parties, including PJM, have 60 days from the date of the order (until Sept. 17) to respond to the FERC request for information to address a just and reasonable ex ante (based on forecasts) cost allocation method to allocate all of the costs of lower-voltage facilities that address stability-related reliability issues, and 50 percent of the costs of regional facilities and necessary lower voltage facilities that address stability-related reliability issues.

The solution-based DFAX method, which assigns costs based on electricity flow, appropriately aligns costs and beneficiaries for most transmission projects. Analysis for stability-related reliability projects, such as Artificial Island, suggests that another type of analysis may be more appropriate for such non-flow drivers, however.

The Artificial Island project is the only stability-driven reliability project involving a new transmission line approved by the PJM Board to be included in the Regional Transmission Expansion Planning Process.  There is no precedent for using a different method to identify and measure beneficiaries for stability.

In June 2017, PJM presented an analysis of two alternative solutions to stakeholders, including the states potentially affected by these alternatives and Exelon submitted comments on a hybrid method.  PJM did not recommend a specific alternative.

The Artificial Island project is still needed.  The operational performance issues exist today and are expected to persist into the future.  The Artificial Island project increases electric grid stability and reduces the risk of major power outages.