Commissioner Chang’s Concurrence to Transmission Security Agreement between Commonwealth Edison Company (ComEd) and Aligned Data Centers (Acquisition) PropCo, LLC, ER26-839-000

Docket No. ER26-838-000

Today’s order accepts the Transmission Security Agreement (Agreement) between Commonwealth Edison Company (ComEd) and  Aligned Data Centers (Acquisition) PropCo, LLC based on the Commission’s determination that the Agreement qualifies for the Mobile-Sierra presumption and is therefore just and reasonable.[1]  I want to be clear that in reaching this determination, the Commission has not independently assessed the terms of the Agreement to determine whether they are, in fact, just and reasonable.  Instead, the Commission has, using the Mobile-Sierra framework, assessed only whether the Agreement reflects “individualized rates, terms, or conditions that apply only to sophisticated parties who negotiated them freely at arm’s length.”[2]  Having concluded that it does, the Commission accepts the Agreement without further scrutiny.  I write separately to reinforce my concern[3] that reliance on bilaterally-negotiated agreements, particularly ones shielded from meaningful Commission review by the Mobile-Sierra presumption, may not be sufficient to ensure that customers are protected against unjust cost shifts from new large loads.

The Agreement is one of a series of contracts executed by ComEd with individual data center customers that codify commitments from new large loads to pay a load-ratio share of ComEd’s transmission revenue requirement.  These commitments increase over time pursuant to a “ramp schedule” designed to track the growth of power usage at the relevant data center, and the Agreement requires that the data center customer pays those transmission charges even if the facility is delayed or canceled.  Otherwise, the customer would pay a termination fee. 

As the order notes, these transmission revenue contribution commitments would not exist without the Agreement; in that sense, they are better than not having the Agreement and they reflect a meaningful revenue contribution towards transmission costs that other customers otherwise would need to pay.  However, there is a need to protect other customers from potential unjustified cost shifts, and neither the terms of the Agreement nor ComEd demonstrate how these commitments achieve that higher and more essential standard.  So, while the Commission properly accepts the Agreement under the Mobile-Sierra framework, that acceptance  does not necessarily protect other customers.[4]

In my PECO concurrence, I suggested that one customer protection approach might be to require that new loads pay the higher of either their incremental costs or rolled-in rates.  Such an assessment would first require that those incremental costs be known and quantified, an exercise that notably has not been conducted and reflected in the Agreement.[5]  In fact, the Agreement does not identify any specific upgrades needed to interconnect the data center.  Instead, it contemplates that, if the large load that materializes through this Agreement triggers transmission upgrades on ComEd’s system, the costs of those system upgrades would be added to ComEd’s transmission revenue requirements and thereby rolled into transmission rates that all customers pay.  The Agreement specifically spells this out, with ComEd stating that it shall “take positions in favor of recovering the costs of transmission facilities used to provide delivery services [to the data center] through [ComEd’s] formula rates….”[6]  This means that all of ComEd’s transmission customers would share the cost responsibility for those transmission upgrades. 

If those system upgrade costs are small relative to the size of the added load and corresponding load commitments in the Agreement, then transmission rates for all other ComEd customers will not increase.  However, if those system upgrade costs are substantially large, the overall rolled-in transmission rates borne by all of ComEd’s customers will increase. 

Some basic math demonstrates the potential shortfall of the transmission revenue commitments in the Agreement.  In this simplified hypothetical example, a transmission service agreement requires a “committed revenue contribution” through which the new customer will pay for transmission service at minimum for 75% of its anticipated size. 

If the customer was 600 MW, under the Agreement it would pay for at least 450 MW of transmission service for a defined period (e.g., 8-10 years).  In isolation, this approach would reduce rates for all customers by spreading the utility’s revenue requirement over more load (e.g. the incremental 450 MW data center transmission service load).  However, in this hypothetical example, if the new load takes service at or below 450 MW while triggering more than ~$200 million in transmission upgrades, then the embedded transmission rate paid by other customers will increase.[7]  As a result, this Agreement, on which the new data center customer’s obligation to pay for a minimum level of transmission service is based, works well for other customers if transmission upgrade costs are sufficiently low; but it could leave other customers paying more if transmission upgrade costs are high.  Moreover, the costs of the transmission upgrades, including depreciation expenses, return on capital (both equity and debt), and income tax allowance, will be borne by customers for the entire useful life of the transmission assets (e.g., 40 years) while the obligations in Agreements are much shorter (e.g., 8-10 years).  Thus, if the large load customer ends its service after 10 years, other customers may face increased costs over the long term.[8]

These bilateral arrangements between companies are not specifically designed to represent the interests of other customers.  Furthermore, the Commission and our state counterparts must not let the Commission’s acceptance of the Agreement and others like it dissuade us from taking additional action to protect customers where we think it is necessary.  Instead, absent some demonstration that the Agreement and similar arrangements provide the necessary level of consumer protection, they should be treated simply as one piece of a broader package of federal and state measures to protect customers, rather than the primary or exclusive means to do so. 

So, the question then is how best to ensure that customers are, in fact, adequately protected against cost shifts.  For our state colleagues, ensuring sufficient customer protection might mean requiring additional revenue contributions from end-use loads as part of their retail rate oversight.[9]  For the Commission, we should assess how to develop customer protection frameworks that can complement and supplement ongoing efforts at the state level.  To its credit, the Commission has acted where transmission terms fail to adequately protect customers.[10]  The Commission is also actively considering how to ensure customer protection is incorporated into new rate designs.[11] 

Affordability and fairness are the Commission’s priorities, and rightfully so.  However, achieving those priorities will require more than passive reaction to filings like the Agreement.  The Commission, industry, and stakeholders should proactively explore potential reforms and standards to protect customers against unjustified transmission cost shifts.  I welcome suggestions about solutions the Commission should consider, and opportunities to receive broad input from states, customers, and other interested parties about productive next steps. 

For these reasons, I respectfully concur.