PJM Blowing Smoke on Congestion Costs, Just Like AEP/Allegheny

A friend in East Virginia just sent me some information.  He included a response by PJM engineer Steve Herling to an interrogatory filed in the Maryland PSC case.  I will reprint the interrogatory here in its entirety:

Discovery request submitted by: Maryland Office of People’s Counsel

Discovery request set number: Third Set

Response prepared by or under the direction of: Steven Herling

Responsible case witness for this response: Steven Herling

Response date: September 17, 2010

(a) In dollar amounts, what are the expected congestion savings to Maryland ratepayers assuming PATH is completed?
(b) Please explain with reasonable specificity how your answer was derived, and identify and provide the documents in which the facts upon which you base your answer are located.


(a) PJM has not calculated congestion savings due to individual transmission lines nor calculated the congestion savings to any individual state. See response to OPC-III-2.
(b) See response to OPC-III-2.  [emphasis mine]

Unbelievable.  After all the squawking we have heard from FERC and PJM (not to mention the Baltimore Sun’s Jay Hancock) about the horrible congestion cost bogeyman, guess what?

PJM has never calculated how much money the PATH line is supposed to save in congestion costs.  Last year, in response to interrogatories in the WV PSC case, AEP/Allegheny admitted that they had never studied PATH’s impact on congestion costs either.

As independent engineer Hyde Merrill pointed out in the VA SCC TrAIL case,

Rate-payers do not pay “congestion costs.”… PJM captures a portion of the congestion related price increase, which it calls “Congestion Costs.” PJM then rebates these increased costs to the ratepayers through the FTR [Financial Transmission Rights] mechanism… These are bookkeeping procedures carried out within the market accounting and billing system…. When [PJM witnesses] refer to congestion costs of $1.2 billion in a single year, for example, they are referring to ratepayer rebates, not to costs paid by ratepayers.

Currently, the congestion costs are actually rebates paid by the power companies to ratepayers.  Building PATH is a mechanism for shifting these costs from power companies onto ratepayers through the FERC cost recovery mechanism.

The whole purpose of congestion costs is to spur power companies to innovate and build new power plants where they are needed, as Merrill points out:

The effect of PJM’s real-time pricing mechanism is to raise prices – dramatically – when congestion occurs. This is intended to send a price signal to encourage more generation and demand side savings in congested areas.

Neither PJM nor AEP/Allegheny have ever determined if PATH would have any effect on congestion costs at all.  So how can they be making their claims that building PATH will reduce their congestion costs?