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Every Last Penny

Transmission cost allocation, the worth of the grid, and the limits of ratemaking.

Fortnightly Magazine - August 2010

Atlantic Electric, Delmarva Power, and the ad hoc Fair Pricing Group (PP&L, PSE&G, Rockland Electric), PJM designed the DFAX method initially to allocate costs only for small, local, low-voltage grid upgrades designed to fix a single, immediate, and easily identifiable reliability or deliverability violation, and so to provide a “snapshot” of line flows at the precise time the RTO includes the local upgrade in its RTEP. That pinpoints cost causation.

By contrast, a major 500-kV line might well address 20, 30 or more violations—some not expected for as long as five to 15 years. But meanwhile, each year that PJM revisits and updates its RTEP, it gets a different picture of likely future conditions. A reliability violation and upgrade “need” cited in this year’s RTEP could well vanish the next year, when the RTEP is retooled, reflecting the latest figures for economic activity, load growth, line loadings, and gen plant development.

The $1.8 billion PATH line (Potomac-Appalachian Transmission Highline), planned jointly by Allegheny Power and AEP, and first approved by PJM in RTEP 2007, as needed in 2012 to ensure deliverability to growing load in Northern Virginia, was deferred year-to-year by successive RTEP studies as the economy deteriorated. On January 27, the PATH sponsors withdrew their certificate application before the Virginia State Corporation Commission, as the line no longer appeared to be needed by 2014, but AEP and Allegheny filed updated testimony before the West Virginia commission just last month, reflecting PJM findings in RTEP 2010 that the line must be built by June 15, 2015. (See, www.pathtransmission.com.)

And in its April report to FERC comparing the DFAX and postage-stamp methods, PJM showed how a DFAX allocation would vary from year-to-year for the 500-kV Susquehanna-Roseland line, planned for northern Pennsylvania and New Jersey, as assumptions changed.

For example, PSE&G, JCP&L and Atlantic Electric, taken together, would pay for 78 percent of the $1.16 billion Susquehanna-Roseland line under RTEP 2007, but 90 percent under RTEP 2009. PECO’s share would fall from $119 million (2007 retool) to $33 million (2008) to nothing at all (2009). On the other hand, the PSE&G zonal allocation goes from $473 million (2007) to $710 million (2009).

Timing is everything.

What if wind projects are developed offshore in the Mid-Atlantic, altering or even reversing line flows in the future?

At the risk of being labeled disingenuous, BG&E argues that it could become a net loser in the future under cost socialization if wind project development out West spawns a raft of new 500- and 765-kV lines built to deliver wind power to Chicago or other Midwest load centers, producing a west-to-east cost shift—opposite to what Exelon’s Naumann complains of today. A short-sighted reliance on DFAX, notes BG&E, could eventually, “shield the BG&E rate zone from being allocated those costs.”

Yet even Judge Posner had discounted this possibility, noting in his opinion that, “so far as it appears, few if any of such facilities will be built in … the Midwest within the foreseeable future.”

Exelon v.p Naumann also points out that PJM’s 2009 RTEP report, while finding some