Media Statements & Speeches
Statement of Commissioner Cheryl A. LaFleur on PJM DFAX Cost Allocation for Bergen-Linden Corridor and Artificial Island Projects
“In companion orders issued today, the Commission denies relief sought in a series of complaints challenging the application of the solution-based distribution factor (DFAX) cost allocation methodology to a limited number of transmission projects approved through the PJM Interconnection, L.L.C. (PJM) Regional Transmission Expansion Plan (RTEP) process.1 Complainants allege, among other things, that the solution-based DFAX methodology does not result in a just and reasonable cost allocation for these projects because they address reliability violations that are not related to flow on the planned projects, and therefore it is inappropriate to allocate the projects’ costs using a flow-based allocation methodology like solution-based DFAX.
“I acknowledge that these cases present difficult questions regarding ex ante cost allocation methodologies, and I understand the reasoning and considerations that led the Commission to reject the complaints. Determining an appropriate cost allocation methodology for large transmission projects has been among the most complicated issues presented during my time on the Commission.
“Nonetheless, I do not agree with the orders’ denial of the complaints. Based on the record, particularly as developed through the technical conference, I am persuaded that the complainants have met their burden to establish that the use of solution-based DFAX to allocate the costs of the Bergen-Linden Corridor Project and the Artificial Island Project is unjust and unreasonable.2
“I strongly support ex ante cost allocation in general and PJM’s solution-based DFAX cost allocation methodology in particular, as I believe it results in just and reasonable cost allocations in most instances. However, the record in this case clearly establishes that there is a discrete and identifiable set of transmission projects as to which that methodology produces an anomalous result and does not allocate costs in a manner roughly commensurate with benefits. This set of projects includes those developed to address short circuit violations, like the Bergen-Linden Corridor Project, and stability violations, like the Artificial Island Project. These two categories of projects are readily definable,3 are historically limited in number (and therefore unlikely to impact use of the solution-based DFAX for the vast majority of projects going forward),4 and address violations unrelated to flows across the planned facility that, in my view, are properly addressed through a more tailored cost allocation methodology.
“For these projects, a flow-based methodology alone is insufficient to properly align benefits and costs. Because the solution-based DFAX methodology relies solely on the use of the facilities to identify beneficiaries and allocate costs, it fails to adequately identify those entities that benefit from resolution of the very specific underlying reliability issues that triggered the development and selection of these projects, and therefore fails to allocate those entities a corresponding share of the projects’ costs. As a result, entities that use the lines may grossly overpay, while entities that benefit from resolution of the underlying violation underpay. I believe the record supports granting the complaints to remedy this flaw.
“Had it determined that solution-based DFAX is not just and reasonable in these limited instances, the Commission would be required to establish an alternative cost allocation method to apply to these and other similar projects. In my view, the Commission should direct PJM to include in its tariff a new ex ante cost allocation methodology to address stability and short circuit projects like those in dispute here.
“The records in these cases largely debate a binary choice between full solution-based DFAX or some other method, such as local zone allocation.5 However, I do not believe the choice is necessarily that stark. Rather, in my view, a just and reasonable cost allocation methodology should recognize two types of benefits – (1) benefits accruing from resolution of the specific underlying short circuit or stability issue, and (2) benefits accruing from use of the facility over time – and allocate a portion of a project’s costs to entities that benefit under each approach. Similar to PJM’s existing hybrid methodology for high voltage projects, which recognizes the broad, long-term regional benefits of high voltage transmission as well as the near-term benefits accruing through use of the line, this hybrid methodology would reflect a fairer identification of benefits and allocation of costs.
“Therefore, to establish the new hybrid methodology, I believe it would be appropriate to initiate a paper hearing to develop a more complete record regarding (1) what methodology should be used to identify “non-flow based beneficiaries” in short circuit or stability cases, and (2) how to apportion the costs and benefits between that methodology and the solution-based DFAX methodology that identifies beneficiaries based upon their use of the line over time. Upon receipt of that information, the Commission would be able to set the just and reasonable methodology and direct PJM to include the methodology in its tariff to allocate the costs of these and any similar projects going forward.
“It is a cliché to observe that hard cases make bad law, but unfortunately I believe that is the result of today’s orders. In my view, the orders err by rigidly adhering to the solution-based DFAX methodology in the face of strong record evidence demonstrating its poor fit for the types of projects at issue in these proceedings. Apprehension over the “slippery slope” that will jeopardize ex ante cost allocation may invite a “stay the course” approach in the form of solution-based DFAX. However, because the instant cases are discrete and identifiable and have significant rate impacts that are not roughly commensurate with benefits, a failure to grant these complaints may actually undermine a cost allocation methodology that is just and reasonable in the vast majority of instances. I would grant the complaints and develop an expanded record to identify a just and reasonable alternative that better aligns the benefits and costs of the Bergen-Linden Corridor Project, Artificial Island Project, and other similar projects that may arise in the future.
“Accordingly, I respectfully dissent in part.”
- 1 Linden VFT, LLC v. PJM Interconnection, L.L.C., 155 FERC ¶ 61,089 (2016); Delaware Pub. Serv. Comm’n v. PJM Interconnection, L.L.C., 155 FERC ¶ 61,090 (2016). In this proceeding, the Commission denies rehearing of its prior order rejecting the complaint filed by Consolidated Edison Company of New York, Inc. (Con Edison). Consolidated Edison Company of New York, Inc. v. PJM Interconnection, L.L.C., 151 FERC ¶ 61,227 (2015).
- 2 Both the Bergen-Linden Corridor and Artificial Island Projects include high-voltage (i.e., 500 kilovolt (kV) or double-circuit 345 kV and above) and lower-voltage components. Pursuant to PJM’s existing cost allocation method, 50 percent of the projects’ high-voltage costs are allocated through the solution-based DFAX methodology, with the remaining 50 percent allocated on a postage stamp basis. The projects’ lower-voltage portions are allocated 100 percent through the solution-based DFAX methodology. Consistent with the PJM tariff and my prior recognition of the regional benefits of high-voltage transmission projects, I would only grant relief for the portion of the projects’ costs allocated through the solution-based DFAX methodology.
- 3 PJM provided a matrix in preparation for the technical conference that outlines that reliability-based drivers of projects included in its RTEP process since 2000, as well as the number of projects within each category.
- 4 As PJM’s matrix notes, of the 1,268 RTEP projects approved since 2000, the Bergen-Linden Corridor and Artificial Island Projects are the only projects that address, respectively, short circuit and stability violations. The record shows that short circuit violations are typically addressed through targeted, inexpensive circuit breaker fixes that are allocated to the local zone, and that stability violations are similarly addressed through the generator interconnection process, rather than the RTEP.
- 5 The relief sought by Con Edison in its complaint is a notable exception, and is, at the highest level of generality, conceptually similar to the relief I discuss here.