Federal 7th Circuit Rejects FERC/PJM Non-Reform of Transmission Cost Allocation

Federal court cases drag on forever.  Remember the 7th Circuit Appeals Court decision in 2009 throwing out PJM’s FERC-approved recovery of costs from all PJM rate payers for transmission lines that benefit only eastern PJM customers?  In that decision, the 7th Circuit remanded the case to FERC, ordering FERC and PJM to fix their cost recovery scheme so that only people who benefit from transmission lines like PATH would pay for them.

In response, FERC held a “paper hearing” to respond to the 7th Circuit.  In March 2013, FERC issued an order which the Commission claimed responded to the 7th Circuit’s concerns.  Except it didn’t.  It was the same old recycled crap in a new wrapper.

Yesterday, the same three judge panel, including Judge Posner, issued an order throwing out FERC’s new fake plan.  The order contains an excellent summary of the case history.  Judge Posner has a clear and non-legalese writing style that is refreshing.  This case is very important, because it attacks the bedrock of FERC’s plan to hide the rate impacts of its high voltage transmission schemes behind its “postage stamp” cost allocation.  Here is what Judge Posner concluded:

To summarize, the lines at issue in this case are part of a regional grid that includes the western utilities. But the lines at issue are all located in PJM’s eastern region, primarily benefit that region, and should not be allowed to shift a grossly disproportionate share of their costs to western utilities on which the eastern projects will confer only future, speculative, and limited benefits.

The petitions for review (from the original plaintiffs) are granted and the matter onceagain remanded to the Commission (FERC) for new proceedings.

Judge Posner agrees with those of us who opposed PATH because we would be paying with our electric rates and our land for a line that only benefited people to the east of us.  FERC and PJM are playing games with the 7th Circuit court.  The Commission and the RTO need to pull up their big boy pants and get cost recovery right.

This 7th Circuit case only applies to PJM’s pre-2013 transmission projects, like the ones it pushed in Project Mountaineer.  PJM has already abandoned its past practice of forcing every rate payer in its system to pay for high voltage transmission lines.  In 2013, PJM adopted, and FERC approved, a system that is a hybrid of the old (still wrong) “postage stamp” system and a formula that requires costs to be born only by those who benefit from a project.  This new system is not what it needs to be, but it is much more realistic than the old boondoggle system that the 7th Circuit has now rejected twice.

If PJM cannot please the 7th Circuit, will the court require PJM and the transmission companies like PPL and PSEG (Susquehanna-Roseland) and FirstEnergy (TrAIL) to disgorge all their ill-gotten gains in rate payer refunds?  We’ll see.

2 thoughts on “Federal 7th Circuit Rejects FERC/PJM Non-Reform of Transmission Cost Allocation

  1. Thanks for the update and summary. I am also a big fan of Posner’s legal writing, although not of many of his views, which to his credit have evolved in mostly good directions, I think.. A great legal mind and author.

    • Tom,

      I’m glad to see you here at The Power Line. Posner has been excellent on the PJM cost recovery issues, but maybe that’s just because the case is so egregious. The three judge panel was not unanimous, and the dissent appears at the end of the 7th Circuit order. Posner wrote a totally wacky decision in a 2013 decision involving MISO’s cost recovery system in Illinois Commerce Commission v. FERC, 721 F.3d 764 (7th Cir. 2013).

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