If you read the recent filing by Atlantic Grid Operators at FERC, you will see repeated references to the PJM system-wide benefits of the project. System-wide benefit is important to the AWC project, because that is the reason for awarding them the right to collect their costs and incentive return on equity from all rate payers in PJM. This system has come to be known as the “postage stamp” cost recovery system.
The postage stamp cost recovery system for high voltage transmission projects is a radical departure from all past FERC practices, as noted by Judge Richard Posner in his 7th Circuit Court decision handed down in 2009. Judge Posner stated that PJM Interconnection could not demonstrate that everyone in PJM benefited from these kinds of projects, and that US law required that only rate payers that benefited from a project should be required to pay for it. The three judge panel headed by Judge Posner sent the case back to FERC and ordered FERC and PJM to demonstrate what benefits Illinois rate payers (the suit was originally brought by the Illinois ICC, that state’s public service commission) would receive from a Project Mountaineer line such as PATH, which benefited only East Coast rate payers and Ohio River Valley generators.
When you read the recent AWC filing, you will see a reference to the 7th Circuit decision and the FERC remand order. FERC tried to remedy its postage stamp problem by cooking up a list of transmission line benefits that it claimed were system wide so it could provide a reason for charging all PJM rate payers. The Illinois Commerce Commission has since filed a motion for rehearing at FERC, claiming that FERC’s remand order is still illegal and that FERC needs to correct it. FERC has been sitting on this motion for months now and appears to want to kill the ICC’s objections by delay. Meanwhile, the FERC remand order has not yet been reviewed by the 7th Circuit, so technically, according to Judge Posner’s original order, the postage stamp plan remains illegal, at least in the 7th Circuit and PJM.
Despite the fact that the status of the FERC remand order is still unsettled, AGO uses the elements of the order to demonstrate the system wide benefits of its AWC project. Here is AGO’s summary of the situation:
In Illinois Commerce Commission v. FERC the Seventh Circuit rejected a PJM “consensus” cost allocation proposal that lacked an evidentiary record “comparing the costs assessed against a party to the burdens imposed or benefits drawn by that party.” The Commission found in the Remand Order, based on an extensive evidentiary record, that facilities rated at 500 kV and higher provide benefits throughout PJM based on a comparison of several categories of benefits to the costs of the lines. These categories of benefits included:
• Regional reliability benefits including: voltage support; stability; avoiding overloads and managing those that occur; and ensuring the power is deliverable to all parts of the region during normal and emergency conditions;
• Flexibility in responding to changing system conditions and usage (daily, seasonally and long-term);
• Savings related to lower operating reserve requirements, lower losses, and fewer outages; and
• The ability to meet public policy requirements (wind integration) in eastern and western PJM.
The Remand Order found that 500 kV-and-above lines provide region-wide benefits under all of these categories and, therefore, that all lines rated 500 kV or higher are eligible for region-wide cost allocations such that cost allocations properly align with benefits.
AWO then proceeds to demonstrate all the ways that the AWC meets these criteria:
Atlantic Grid has commissioned studies that show—contrary to the PJM TOs’ claims—regional reliability benefits and cost savings from the Atlantic Wind Connection project. As Dr. El-Gasseir explains, these studies show many of the regional benefits considered by FERC’s Remand Order, including reliability, market efficiency and operational flexibility. In particular, Dr. Gasseir shows that:
• AWC will affect regional power flows on 500 kV lines across PJM and thus provide regional benefits through production cost savings;
• AWC may allow PJM to defer or avoid transmission upgrades;
• AWC is a network facility that will be fully controllable by PJM to support reliability and market efficiency by relieving constraints;
• AWC will provide operational reliability and performance benefits, including the ability to better manage outages during abnormal operating conditions;
• AWC will lower regional operating reserve requirements; and
• AWC will provide a new backbone transmission structure that will accommodate the interconnection of vast offshore renewable energy resources and thus achieve one of the principal goals of Order No. 1000—a clear benefit under the Remand Order.
Instead of trying to refute each of the first six claims individually, I refer you to the testimony presented by electrical engineer Hyde Merrill in the East Virginia PATH case. Merrill addresses all of those claimed benefits and shows how there are much less expensive measures available to PJM than building new high voltage transmission lines. Merrill’s testimony is an excellent real world argument against the whole idea of postage stamp cost recovery for these lines. Building new long distance transmission lines of any kind, any where tends to reduce reliability, instead of supporting it. Reserve requirements can be managed much better by demand management than through putting more wire in the air. Blackouts are primarily caused by distribution system failures, not lack of transmission capacity.
There are two points in AGOs argument that are valid and valuable. The first section of the AWC will be built off the NJ coast. (Note about the link: read Wald’s description of AWS, ignore his clueless ramblings about PJM. He remains completely misinformed about how PJM works.) NJ has the highest electric rates in PJM. Adding new generation and coastal connections will add significant generating capacity to NJ, and will eliminate the instability and reliability problems associated with importing power from other parts of PJM. AWC will also allow NJ to meet its own renewable portfolio standard targets from its own wind and sun resources. This development of new wind power, within NJ, will short circuit any claims by PJM or FERC that new land based transmission lines are needed to bring in wind-generated power from somewhere else.
We still don’t have an answer to the question of whether having a single north/south backbone transmission line would be any more effective than having a few east/west lines connecting several wind farm regions directly to substations on the coast. That has yet to be demonstrated, but there do not appear to be any of these kinds of projects in front of PJM right now, so the AWC is the only show in town.
The AWC will also have an impact on FERC’s attempt to use single state renewable portfolio standards (RPS) to ramrod new transmission projects. We just don’t know what that impact will be. Would approval of AWC be used by FERC as a wedge to promote its land based wind power agenda? Or would AWC demonstrate that the RPS justification can work if projects allowed states to meet RPS requirements from within their own borders or territorial waters? Again, we will have to wait and see.