(November 2008) Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
PJM would dictate grid expansion, even if not needed for reliability, and then push the cost of the upgrades on those who use them the most.
Chairman Pat Wood and his Federal Energy Regulatory Commission (FERC) may well have given up on attempts to impose a standard market design (SMD) on the electric utility industry, but that doesn't mean the nation's grid system operators won't try the same thing.
Witness the PJM Interconnection, one of only two certified regional transmission organizations (RTOs), which has proposed a triple-whammy of three controversial SMD policies that together will out-do anything that FERC has dared to require:
- A regional process with total RTO control for planning and construction of so-called "economic" transmission expansion-upgrades not strictly required for the sake of reliability;
- Mandatory participant funding for economic upgrades, with costs not rolled in across the RTO footprint, but allocated instead to smaller zones or even sub-zones of customers who benefit most from the upgrades;
- Generous rate incentives for the transmission owners who provide grid service and who will collect a "transmission enhancement charge" (TEC) from the beneficiaries of the economic grid upgrades.
PJM acted so as to comply with a series of FERC orders from last fall and winter that had reviewed PJM's draft protocols for transmission expansion planning and had found them wanting for not going far enough to "support competition." So now PJM has come back and has given FERC everything that it asked for-and in spades.
Consider participant funding-the notion of granting financial transmission rights (FTRs) to entrepreneurs who risk private capital for grid expansion, rather than socializing benefits and risk across the larger universe of ratepayers through rolled-in rates. FERC had suggested the idea in its SMD rulemaking, raising the ire of many, even while utilities in the Southeast favored participant funding as a sine qua non of any viable RTO structure.
Now PJM has rekindled the debate, even after FERC's apparent defeat on SMD. Listen to the American Public Power Association:
"The commission's directive … did not require PJM to couple it with a stab at participant funding," writes APPA. The association fears, as do various public power coalitions, that PJM will use participant funding to force costs on transmission-dependent utilities, to pay for upgrades for load pockets that should have been fixed long ago.
APPA even questions PJM's motives for proposing participant funding after FERC's retreat from SMD in its recent white paper:
"This aspect of PJM's filing is either a prohibited attempt to jump the gun … or an effort to sabotage the proposal by attaching a 'poison pill'."
The idea of investment incentives has drummed up a wealth of protest. Just listen to Continental Cooperative Services, Inc. (CCS), an alliance of two generation and transmission (G&T) cooperatives, including Allegheny Electric Co-op. Inc., a utility serving load in PJM West:
"The PJM proposal gives it virtually unlimited discretion … Under the April 11 filing in Docket No. ER03-738 [the incentive surcharge], the rate consequences that follow, when transmission development is mandated by PJM, are so dire that … it might