PJM Interconnection has completely screwed up its first competitive transmission project proposal process
. And now transmission developers and regulators are schooling PJM on what "constructability" really means (of course, for English language purists, "constructability" isn't even a real word, but some bastardized business buzz word).
While FERC's Order 1000 reforms were supposed to usher in a new wave of competition, pricing and cost allocation beneficial to consumers, nothing has changed except the window dressing. When push came to shove, PJM selected a project proposed by one of its favored incumbent transmission owners and kicked all the other proposals to the curb.
PJM staff has recommended that its Board of Managers approve its selection of PSE&G's "7K" project that will construct a new 500kV line parallel to an existing circuit. PJM staff has stated that the "constructability" of the PSE&G project, as evaluated by hired consultants, was the basis of its decision.
And then the letters from regulators, public interest groups, and competing transmission developers started rolling in...
Competing developer Atlantic Grid sums up the problems with PJM's over-managed RFP process quite nicely:
Lastly, this decision is risky as precedent for future RFPs that should encourage innovative, well-engineered proposals and rigorous competition. In a typical RFP, a problem in need of fixing is published and competitors are invited to submit proposed solutions. The customer (PJM in this case) evaluates the proposals, disqualifies the ones that don’t work, and makes a selection from the remaining qualified projects. But PJM’s RFP was more like a “call for ideas.” It appears that PJM took the proposals and then re-engineered a solution it liked best by mixing and matching pieces from different project proposals. The result is that PJM’s recommended 7K Project looks almost nothing like the original 7K proposal submitted by PSE&G. Unfortunately, if this RFP sets the pattern for the future, PJM will discourage participants from spending time, money and engineering resources to develop innovative, well-engineered RFP responses. And ratepayers will lose when the robust, competitive process PJM hoped for fails to develop.
Somebody needs to step in here and put PJM staff on a strict non-manipulation diet. I know it's really hard to step away from the buffet line when you've been gorging for years, but that kind of manipulation made the entire RFP worthless, and wasted the time of the independent developers who invested time and money in innovative proposals. Hey, who remembers Primary Power
and FERC's hope that Order No. 1000 would put a stop to that kind of favoritism? I'm thinking it didn't work.
Atlantic Grid points out PJM's "constructability" error:
For PJM it is risky because significant permitting hurdles mean that the project
has a high likelihood of being rejected at the state and/or federal levels and a
needed reliability solution will be substantially delayed because PJM has proceeded down a dead end. As discussed below, the New Jersey Board of Public Utilities (NJBPU) has submitted comments warning about the permitting risks of all of the preferred options, including the 7K Project, and pointing out that none of the preferred options took advantage of the opportunity to get a preliminary determination of permitting feasibility. The NJBPU warns that the protests, delays, and costs well above initial estimates for mitigation during construction that plagued the Susquehanna-Roseland project also may affect PJM’s recommended solution “especially given that a viable alternative exists.”
And what happens when PJM makes a "constructability" error? Sixty-some-odd-million consumers will end up paying for more failed projects
, and reliability will suffer.And that brings us to... the regulators.
The New Jersey Board of Public Utilities and the New Jersey Division of Rate Counsel sent a joint letter
to the Board of Managers, pointing out that the "constructability" of PJM's selected project will receive national, even international, opposition from environmental groups because of its unnecessary crossing of "wetlands of international importance." New Jersey regulators point to the LS Power proposal as a lesser cost and more environmentally friendly alternative.
Competitive developer LS Power not only called PJM on its heavy-handed, manipulative "evaluation" of competing proposals, but it also threw a bomb into the center of the room. LS Power has offered to cap its project cost at $171M, much less than the PSE&G project's $297M estimate.
Well, that's a first. A transmission project with a firm cost cap that requires the developer to actually perform during construction. This is exactly the kind of "performance-based" behavior Congress expected out of transmission developers when handing them very profitable incentives in Sec. 219 of the Energy Policy Act. Unfortunately, FERC didn't see it that way and chose to open the incentive buffet with absolutely no performance standards or cost caps on qualifying projects. The more it costs, the more they make!
The Delaware Public Advocate's letter, on the other hand, supports PJM's choice of the 7K project. But, Delaware's support is not because 7K is a superior choice from a "constructability" angle, it's simply because Delaware will be allocated less total cost from the 500kV 7K project than from LS Power's cheaper 230kV solution due to PJM's new cost allocation methods. Well, if this isn't a walking advertisement for cost allocation issues causing short-sighted transmission choices...
Dominion's transmission company (because if you don't have your own independent transco in order to take advantage of extra FERC incentives, you're just not part of the "in" crowd these days) also takes issue with the way in which PJM evaluated projects and made its selection.
Exelon doesn't shill for its own losing project, but concentrates on the mess PJM made of its competitive process, and makes some suggestions for improvement.
Here's a suggestion Exelon didn't think of... why not remove any sponsor-identifying information from the proposals before evaluating their technical merits, costs, and "constructability"? Playing favorites among incumbents seems to be the most basic problem here. Maybe PJM can issue little blindfolds to their planning staff, because justice is blind and all, especially when she gets her eye poked out with the rod of favoritism.
And bringing up the rear of the letter flurry, New Jersey Sierra Club slaps PJM with a glove regarding the environmental issues with its selected project. This is pretty much a guarantee of a public opposition charlie foxtrot that PJM would do well to heed.
So, when is PJM's selection of new projects going to become a truly competitive, cost effective and forward-looking process that builds for the future? PJM has not improved its processes under Order No. 1000, and its ratepayers and consumers are going to be the ones to suffer poor "constructability" choices, short-sighted "minimum required for now" choices, and ineffective, but cheap solutions to reliability issues.
This is one giant FAIL.
Remember the letter to the TVA
from Tennessee Congressmen Alexander and Fincher that asked some hard questions about Clean Line's Plains and Eastern Project?
The TVA has responded, and it's not looking good for Clean Line! The letter, from TVA CEO William Johnson, is an exercise in reading between the lines, but here's my take on it, in a nutshell:
Clean Line is not economic for the TVA and presents reliability issues.
The answers to Alexander's and Fincher's questions are:
1. Does purchasing electricity from this distance increase security threats to TVA's
power supply? Former U.S. Secretary of State George Schultz has said we should
pay attention to generating more energy where we use it because of national
The power grid is a complex, interconnected network of generating plants,
transmission lines, and distribution facilities. This system is designed with
redundancy and resiliency at its core to ensure a reliable electric power system.
Some increase in security risk is unavoidable as distance increases between
generation and point of use. The extra distance provides additional exposure for
natural or malicious events to force a transmission path out of service. The potential
for an interruption with long duration to power supply increases if full transmission network redundancy is not provided or as greater amounts of supply are obtained
from more remote sources. The Department of Defense has become aware of this
risk; it is implementing a program to make its major installations self-sustaining in
energy to mitigate the potential interruption from the grid.
Translation: Yes. The most reliable system is one where generation is located as close as possible to point of use. Long transmission lines increase the opportunities for equipment failure, natural disaster, or terrorist activity. Our military realizes this and has begun to island itself from the vagaries of our increasingly complex grid and long distance power shipments by building its own secure generation sources on site, which is known as distributed generation.
2. What is the cost of purchasing wind electricity compared to TVA generating or
purchasing other types of electricity generation?
TVA is studying the addition of new wind energy resources as part of the
development of its new Integrated Resource Plan (IRP). This process provides
opportunity for public participation. When TVA evaluates the cost of wind energy,
we include the value of the energy itself, as well as the cost to transmit out-of-valley
wind energy to the Tennessee Valley. In addition, there are costs associated with
the intermittent nature of wind generation. Through the IRP, TVA will rigorously
compare wind energy purchases against other alternative sources of energy
(renewables, new and existing TVA generating assets, or purchased power) to
serve local power companies and directly-served customers in a cost-effective
In FY2013, TVA's average fuel rates by asset type were as follows: nuclear,
$6/MWh; coal, $32/MWh; and gas, $39/MWh. The TVA average system fuel cost,
which includes hydro (no fuel cost) and purchased power, was $24/MWh. By
comparison, off-system wind purchases were $80/MWh (including transmission).
The cost of both wind and solar have trended steadily down in recent years. Lazard
Freres and Company, LLC, a leading financial advisory firm, does a periodic study
on the costs of renewable energy. Its most recent report states that the cost to
generate wind with the Federal production tax credit (PTC) is as low as $23 MWh;
without the credit, the costs are as low as $45 MWh. (Note that these are
production costs that do not take into account the cost of delivery to or the impact on
the TV A system.)
Translation: Wind is the most expensive resource in TVA's portfolio of resources. Wind without the PTC (and there currently is no PTC) costs $45 MWh to produce. In order to get remote wind into TVA's system, Clean Line will add transmission costs that the company previously pegged at $25 MWh
, for a total of $70 MWh. This is a figure very generous to Clean Line, because it doesn't include any of the additional costs Clean Line is going to have to cover to pay for any necessary upgrades to TVA's transmission system to handle the injection of its generation. TVA's $80 MWh price for remote wind is probably pretty accurate. In addition, TVA says there are additional indirect costs due to wind's intermittent nature that must be considered. All of this number crunching will occur as part of TVA's Integrated Resource Plan, which is still in process. A decision on Clean Line is still a long way off.
3. There is substantial opposition in Congress to the wind production tax credit. Will
TVA ratepayers be at risk of increased rates if the wind production tax credit is not
TVA does not benefit directly from the PTC. As noted in the prior response, the
PTC has a material impact on the cost structure of wind developers and, in turn, the
price they can offer to TVA or other purchasers of the wind energy. Any TVA
purchase of wind energy would be under a long-term contract that would place risk
associated with the tax credit on the seller.
Translation: That would be the wind farm's problem because any contract TVA would sign would be for a fixed price. If a lack of tax incentives makes building new wind farms uneconomic, then they won't be built!
4. What is the reliability of purchasing wind power as compared to other types of
electricity generated by natural gas, nuclear, coal, or hydropower?
Because wind is an intermittent resource that lacks some of the dispatch capability
of other resources, it does not eliminate the need for base load or dispatchable
power plants like nuclear, natural gas, coal and hydropower. Adding intermittent
generation resources like wind can be challenging to manage, particularly as the
volume of generation from those sources increases. Wind patterns are fairly
predictable, but not entirely so; in addition, weather and other factors can affect
output. To maintain reliability, a wind energy purchaser must keep adequate
capacity and spinning reserves to cover the variability inherent to wind. Spinning
reserve is typically calculated as the amount of capacity available to cover the loss
of the largest generation source on the system. Utilities across the country have
been integrating more wind into their systems over the last several years, and TVA
already integrates 1,515 megawatts of off-system wind power. The industry has
growing experience with this issue, but it does make ensuring reliability more
Translation: Because wind is intermittent, it's not reliable. TVA would have to pay to have reserve generation available at all times to make up for wind's unreliability. In other words, buying wind would do little to shut down existing fossil fuel plants.
5. TVA's peak power demands tend to be between 4:00 p.m. and 7:00 p.m. and wind
tends to mostly blow at night. How does wind power fit into TVA's overall demand
structure if the electricity isn't being produced when TVA needs it the most?
TVA analyzes historic and forecasted wind patterns to determine expected wind
deliveries at our system peak. Our forecasting and planning processes reflect
adjustment to wind generation at our summer peaks based on this analysis. Clean
Line has told us that a production profile provided by the independent meteorology
firm, 3Tier Oklahoma, shows that panhandle wind energy produces at about a 50
percent capacity factor between the hours of 4:00 p.m. and 7:00 p.m., thus
contributing to meeting peak demand. TVA's current wind resources produced
about 25 percent average capacity factor over that peak period last summer, with
significant variation each day (between 5 and 65 percent capacity factor). TVA will
take the seasonal and time-of-day energy patterns of wind into account when
evaluating adding additional wind energy to its portfolio.
Translation: Clean Line says its generation will be available 50% of the time, but reality and experience shows it will actually only be available 25% of the time, with extreme highs and lows. When there are lows, the lights could go out if there isn't enough reserve generation ready to go (spinning).
6. At a roundtable in September 2013, hosted by Senators Corker and Alexander, you
said that TVA didn't need additional electricity generation capacity as the result of
reduced electricity demand. Has this projection changed?
Electricity demand is not expected to return to 2007 levels until the end of this
decade. We are projecting growth in demand of approximately 0.6 percent per year,
net of TVA's energy efficiency efforts. TVA believes that we have adequate
supplies to meet the near- to mid-term energy needs of the Valley reliably. Cleaner
energy sources, including nuclear, renewables, hydro and energy efficiency, provide
diversity within TVA's existing balanced energy portfolio. TVA is evaluating future
power needs and opportunities to meet them through the IRP. Wind and other
generating resources are regularly evaluated against existing or planned asset
additions to address changing conditions.
Translation: Demand has tanked and is not expected to recover.
7. If the projection for TVA's electricity demand has changed since September 2013,
does it make more sense to purchase this wind power from Clean Line Energy
Partners, to build additional nuclear capacity, or to build additional natural gas or
While demand over the next decade or so is predicted to be stable with low growth,
the TVA generation fleet is in transition. TVA has retired or will retire a substantial
portion of its coal fleet; we are committed to the completion of Watts Bar Nuclear
Plant Unit 2 and to a large new gas combined cycle plant in Paradise, Kentucky.
We have the potential to get incremental megawatts from the hydro system and a
significant amount from power uprates in the nuclear fleet. We have to either
retrofit, retire, or replace the Allen Plant in Memphis before 2019 under the terms of
an agreement with EPA and others. (Clean Line cannot supplant Allen because of
the need for a generation source physically located in that area to provide
transmission support that imported wind generation cannot provide.) In addition,
other market participants have approached TVA with expressions of interest to
provide electricity from gas, nuclear, wind and solar assets. TVA also factors in
energy efficiency and demand response programs into its resource decisions. The
recently announced draft 111 (d) rule from EPA, if enacted in its current form, will
also have a national impact on future decisions.
Clean Line will be evaluated in this context of low growth, transitioning fleet and
other options by application of the statutory mandate and guidance noted in the
preamble of this letter.
Translation: In a word, no. Clean Line isn't even a useful substitute for generation from coal plants that TVA is planning to close. There are plenty of other resources available.
The rest of the questions deal with eminent domain questions, which TVA could have batted away entirely because TVA will not participate in those activities. However, TVA answered each question with, "Clean Line said...." and repeated the same old carefully crafted lines about "voluntary acquisition," continued use of the properties for farming and ranching, and compensation in accordance with Clean Line's paid-for market value studies. Read these answers using a falsetto voice for the things Clean Line said and you'll get a better appreciation for TVA's tongue-in-cheek repetition of Clean Line propaganda.
Bottom Line: Clean Line needs to look elsewhere for customers for its Plains & Eastern payload.
Holy corporate reputation issues, Batman!
FirstEnergy wannabe-spinner Charlene Gilliam (All right?) crashed and burned at a Hampshire County Commission meeting yesterday. Bless her heart, it probably wasn't all her fault. It's because she works for a company that has ruined its reputation in this state (and beyond) through a series of greedy, self-interested attacks on its customers and employees.
The people have had it with FirstEnergy's corporate disinterest in the hand that feeds them. And FirstEnergy is too STOOPID to have seen this one coming. Sometimes, I wonder how my lights stay on at all, and then I remember that any smart people who still work for FirstEnergy are the ones driving the bucket trucks that come to our rescue. It's upper management that has been snorting the STOOPID sauce.
Commissioner Hott seems to agree:
“What I think would help is to get some of these guys with ties on to come down and see what’s actually going on. They need guidance at a higher level,” Hott said.
Like maybe Charlene should have brought this character along yesterday?
Clean Line Energy Partners President Michael Skelly's wife confided in a Houston-area reporter not so long ago regarding her and her husband's approach to strategic planning:
"We don't think a long time about things, she says. "That seems like a good idea! Let's do that! That's the extent of our long range planning."
And that seems to be exactly how Clean Line Energy Partners was created... based on a spur of the moment whim that "seemed like a good idea." And now this company is in up to its neck, after tossing millions of dollars of its investors' money into a losing game, and inspiring record amounts of entrenched opposition to new high voltage transmission lines. Yay you, Michael Skelly!
So, where did his crazy idea come from? I remember coming across an article about this man and his company several years ago, many months before opposition to Clean Line Energy projects began to coalesce. In the article, Skelly (or maybe it was his little buddy Hans, I honestly can't remember) seemed to have the idea that because their transmission lines were supposed to be for "green" energy, people would welcome them being sited on their land. At the time, I snickered and thought about what a wake up call this company had coming, because I knew there would be record opposition. I just had to wait a bit, and sure enough, a few names started popping up in the media questioning Clean Line's plans. From there it was just a hop, skip and a jump to strong opposition groups well-equipped for the battle ahead. And so it is!
It's not about the color of the electrons, it's about the transmission line. Where did Skelly get his crazy idea that landowners would welcome a "clean" line in their backyard?
Well, friends, I have finally located the source! At the 2009 American Wind Energy Association's WINDPOWER 2009 conference in Chicago, Ben Kelahan of The Saint Consulting Group made a presentation of his company's public opinion polling survey results about transmission line siting.
The presentation informed attendees like Michael Skelly,
A majority of Americans oppose new high-voltage transmission lines in their community, but that opposition drops precipitously to 17% if those lines are delivering clean, renewable energy from wind. Support for new transmission lines leaps from just 46% to 83% when respondents are asked specifically about high-voltage transmission lines delivering wind power.
The survey of 1,239 adults nationwide was conducted last week (April 21-23) by The Saint Consulting Group, the political land use consulting firm that also issues the annual Saint Index© survey of attitudes toward real estate development projects, including energy-generation projects such as wind, nuclear and hydro facilities.
Ben Kelahan, energy practice leader at Saint Consulting, said the new results are a clear sign that Americans support cleaner, renewable power and that it has carried over to the distribution of that power through their own backyard.
“High-voltage transmission lines generate some of the most adamant NIMBY (Not In My Back Yard) opposition in the country. That such a large percentage of people are willing to allow green lines in their community says a lot about the awareness and importance of renewable energy and climate change issues in addition to the education efforts undertaken by the renewable energy industry,” Kelahan said.
And the next thing you know, Clean Line Energy Partners was founded in 2009
to build "green" transmission lines across thousands of midwestern back yards. "That seems like a good idea! Let's do that!"
I'm sorry, Ben, but your survey is W-R-O-N-G! For as today's reality demonstrates, people really aren't willing to allow "green" lines in their communities. Perhaps they said they would when you had them on the phone and the "green" line was only an idea proposed for someone else's community. But when the rubber meets the road and the "green" is washed away, it's still a transmission line nobody wants or needs. Public opinion surveys are only as good as the companies who conduct them, and are routinely manipulated to produce a desired result that may not comport with reality.
But, for Skelly, I'm not sorry in the least. It wasn't a good idea, your whole business plan is based on incorrect data, and it's never going to happen. Give up.
A familiar face peered out at me from my RTO Insider newsletter
Commissioner Jon McKinney made a statement at the annual MACRUC (Mid-Atlantic Conference of Regulatory Utility Commissioners) conference last week that goes a long way toward explaining why the WV PSC always seems to be at odds with the needs of West Virginia's utility consumers. In explaining why West Virginia might not be able to cooperate with other states in a regional effort to comply with the EPA's new carbon rules, Commissioner McKinney admitted:
“For [a regional solution] to actually happen, it goes way beyond the public service commissions. It has to get [approved by] the governors and the legislators,” West Virginia Public Service Commissioner Jon McKinney told the Mid-Atlantic Conference of Regulatory Utilities Commissioners’ (MACRUC) annual education conference. “I’m handcuffed in my ability to do that. It has to start someplace else.”
And Commissioner McKinney is "handcuffed" by West Virginia Governor Earl Ray Tomblin because he owes his day-to-day employment to the grace of a controlling, corporate-owned political figurehead.
Commissioner McKinney's 6-year term as Commissioner expired in 2011, three long years ago. However, he continues to serve at the will of the Governor, without being officially re-appointed. At any time, Governor Tomblin could appoint someone else and punt Commissioner McKinney into the wild, blue yonder. But he doesn't.
By playing games with Commission appointments, Governor Tomblin rules the PSC with an iron (corporate-funded) fist.
It's not that Governor Tomblin is too busy to re-appoint Commissioner McKinney, or appoint someone else. Earl Ray was "Johnny on the Spot" when former Allegheny Energy attorney Michael Albert's commission appointment expired last year. Albert was quickly reappointed to a third term, and "our" state senators lined up to rubber stamp his appointment.
So, when Commissioner McKinney says he's handcuffed, he probably really means it.
Is this any way to serve the public?
Check out the collision of ideas in a recent edition of the Energy Law Journal
. Oh, it's really not as boring as it sounds, but the authors sure do know how to belabor a point. You'd think they were being paid by the word...
First, take a look at DOES DISRUPTIVE COMPETITION MEAN A DEATH SPIRAL FOR ELECTRIC UTILITIES? by Elisabeth Graffy and Steven Kihm. It's one more take on the idea that how we produce and use energy is moving on, and utilities that don't get ahead of the curve by offering products that consumers want are going to end up like streetcars, land line phones, and beanie babies.
Traditional utility response to the proliferation of widely distributed rooftop solar has thus far been limited to attempts to lock in a future revenue stream to pay for what may become a stranded investment in centralized generation and transmission. Early efforts in this regard have been soundly rebuffed, not only by the owners of these small-scale generators, but regulators as well.
Strenuous efforts to mitigate rather than innovate seem likely to increase vulnerabilities by generating public and customer backlash, motivating market competitors, and instigating potential legal challenges.
The article compares and contrasts the responses of two companies facing innovation/technology challenges in their respective industries. It examines how the cable TV industry remade itself when facing competition from satellite TV companies -- it began offering new products that increased its value to consumers by bundling TV with phone and internet service.
In contrast, much is made of the fate of Market Street Railway, a regulated streetcar company whose response to competition from buses and automobiles was to increase rates to cover its costs while relying on regulation to maintain its monopoly.
This story has significant implications for electric utilities facing increasing and especially disruptive competition that may shift their risk position from the zone in which regulation is effective to one in which it is not. That Market Street responded to disruptive competition by simply requesting rate increases from its regulator reveals denial that their economic woes were due to fundamentally changed circumstances that required new organizational strategy, not just regulatory intervention. Market Street, while fully understanding the existence of threats to its viability, showed no real signs of innovation or adaptation in this regard, but rather continued a reliance on conventional cost-accounting-based utility ratemaking practices to the bitter end.
And that's exactly what utilities seem hell bent on doing in the other ELJ article, REGULATORY FEDERALISM AND DEVELOPMENT OF ELECTRIC TRANSMISSION: A BREWING STORM?
This article, by James Hoecker, advisor to WIRES, the "Voice of the Electric Transmission Industry!!!" wanders on for 29 pages of transmission building advocacy. Build, build, build! It doesn't seem to matter whether there will be any consumers left to pay for it all, as long as the federal government takes control of electric transmission permitting and siting today by "collaborating" with states in order to usurp their authority. It even goes so far as to push the CSG's interstate siting compact bad idea.
So, what will it be? Transmission or innovation?
Building more traditional transmission using eminent domain to acquire new rights of way will NOT work. The public has had enough! Transmission opposition has become increasingly sophisticated and its methods are becoming more effective at cancelling and delaying most new proposals. This pitched battle has both sides spinning its wheels, but delay is the opposition's friend. And the more the industry nibbles away at state authority, the closer it pushes state regulators toward permit denial.
Does this mean that we can stop building transmission altogether? No, but we can stop building transmission stupidly. Smart transmission uses existing rights of way to rebuild existing lines to increase their capacity. In some instances, the public actually welcomes a responsibly managed rebuild, especially when presented as an alternative to new transmission. In other instances, the public welcomes smartly designed new transmission projects, like Atlantic Grid's New Jersey Energy Link. This project is buried for its entire length, avoiding the expense and time delays of opposition to traditional overhead transmission projects. But perhaps its best selling feature is that it is designed to be useful long into the future -- moving conventionally generated power to markets that need it today, but also there to move offshore wind to load as it is developed. If only they get rid of that insulting "NIMBY" word...
But old habits die hard for the big energy conglomerates, who wish to continue operating their streetcar named De$ire. Instead of creating an exciting and profitable new market for themselves, Ohio's Tweedledum and Tweedledee have hung their hopes (and plopped their "transmission spend") on investing in more transmission.
You can lead a company to knowledge, but that doesn't necessarily make it any smarter.
Oooooh! Shiny object!
In the end, the electric utility as an institutional form has not exhausted its relevance. Claims that utilities are in a certain death spiral seem premature. However, those predictions seem disturbingly grounded in tacit assumptions that utilities are too hidebound by their past to be able to adapt in a timely or agile way to rapidly changing conditions. If so, utilities will find themselves to be brittle rather than resilient when confronting disruptive competition in a sector that is central to social, economic, security, and environmental necessities and, therefore, cannot remain static. All signs point to the reality that utilities must change. The open question is whether they will change by embracing and, indeed, leading value creation or be changed by others in the market who embrace it first and more firmly.
In a predictable move, the U.S. Court of Appeals for the 7th Circuit kicked the Illinois Commerce Commission v. FERC can back to Washington today.
This case has been dragging on for nearly 5 years. When it first started, ratepayers in PJM's Illinois territory were looking at sharing a huge chunk of the cost of PJM's multi-billion dollar Project Mountaineer collection of unneeded transmission projects. Although the bill has shrunk considerably with the cancellation of PATH and MAPP, the argument has only grown.
It centers on PJM's 2006 adoption of the "postage stamp" cost allocation methodology. This method assigned costs of new transmission 500kV or greater to all ratepayers in the region based on their share of regional electricity sales. The more power an area used, the greater its share. PJM did this to spread out (socialize) the cost of its Project Mountaineer venture over more customers so it could get that transmission built before the hoi polloi noticed, "before it became common dinner table talk."
However, it's important to realize that PJM no longer uses the 100% "postage stamp" cost allocation method and hasn't since last year. Today's 7th Circuit decision will have no effect on any proposed or future transmission projects in PJM, or any other RTO. Today's decision will only affect those projects that were built (or not!) before last year's new allocation method went into effect. PJM's new, FERC-approved cost allocation methodology relies on a 50-50 split of two different methods for transmission lines of at least double-circuited 345kV or greater. The first 50% is allocated according to the old postage stamp method, and the remaining 50% is allocated either to the cost causers or the beneficiaries, depending on the reason for the project. Costs for transmission projects based on "public policy" clean energy state laws will be allocated to the states that require them under PJM's "State Agreement Approach." If a state doesn't agree to shoulder the cost burden for a project designed to meet its renewable portfolio standard, then it will not be built.
Today's decision echoed the first remand from the 7th Circuit, that found that FERC had not done enough to show that utilities in "western PJM" received benefit from Project Mountaineer that was commensurate with their cost responsibility under the old "postage stamp" allocation method.
FERC dealt with the first remand by rolling its eyes and making up more crap about how "western PJM" benefited from Project Mountaineer. It pulled an even bigger diva act on rehearing. But FERC just can't out-diva Judge Posner of the 7th Circuit.
Posner hates coal, and transmission lines that carry it. But, he loves postage stamp rates for transmission lines that are supposed to be "for wind."
This Sybil act must also be confusing to FERC, but hopefully they can get it right this time... because third time's a charm, right?
Go ahead, read today's decision. It's quite chatty and reads like some guy's geeky blog post about electricity and cost-benefit analyses, until you get to the 9-page dissent by Judge Cudahy, who seems to be writing from the other side of the political spectrum. It's fairly entertaining. However, I suspect FERC is not as amused as you are.
Nearly 10 years ago, PJM's management made a very poor choice approving Project Mountaineer
, a scheme to build more than $3B worth of new transmission in order to increase the transfer of 5,000MW of coal-fired generation to the east coast. Project Mountaineer caused PJM to approve four new high-voltage transmission projects and add them to its RTEP: TrAIL, Susquehanna Roseland, PATH and MAPP. Only two of these highly controversial projects were ever built, and at a very high cost. The other two were abandoned without ever turning a shovel of dirt.
PATH was re-routed within months of being introduced to the public, because PJM's approved plan for it called for "twin" 500kV circuits through densely populated, high-growth areas of West Virginia's eastern panhandle, northern Virginia, and Maryland's Washington, D.C. suburbs. It just wasn't physically and politically possible to construct the project. PJM's determination of the "constructability" of PATH was wrong. Even its second choice of a single 765kV line through the area failed.
And PJM hasn't gotten any smarter about constructability since. Its first major transmission project since the PATH/MAPP failure is also destined to "constructability" failure. PJM recently selected PSE&G's proposal for a new 500kV line to parallel an existing line in Salem County, New Jersey to solve its Artificial Island problem. PJM claimed its decision was based on the "constructability" of PSE&G's project.
So, what standard did PJM use? PJM hired a company that does work for the companies bidding on this project to do a "Constructability Study."
The study accounts for environmental permitting, historical commission review, federal environmental review, and a host of other "risks." It gave little moment to state utility commission review and permitting, and paid absolutely no attention to possible public opposition and its impact on permits necessary from local government.
I guess PJM and GAI Consultants have already forgotten what killed the PATH project they both had a hand in. GAI opines that paralleling existing transmission lines will dampen opposition because there's no need to involve "new" landowners. Right... because transmission lines are like potato chips... one is never enough!
The routing study and mapping shows urban and residential areas being crossed, and at one point the line runs practically right over top of a school. Although all projects needed to acquire new right of way adjacent to the current one, GAI and PJM reason that PSE&G has an advantage here because of some old agreement over ownership of transmission assets. I just don't see this agreement being helpful convincing landowners to agree to expand the current right of way. Maybe PJM has forgotten what happened when TrAILCo attempted to utilize old right of way in Pennsylvania? In that instance, trying to force old agreements on new landowners using unscrupulous land agents blew up in TrAILCo's face and most likely contributed to its eventual denial by the PA PUC. In the end, TrAILCo had to abandon that old right of way and give it back to the landowners.
The selected project also proposes an overhead river crossing in a very busy shipping lane, instead of the submarine crossing proposed by other projects.
This is a public opposition bonfire in the making!
So, what else could PJM have done here? What other projects were in the running? Projects choosing a route through Delaware were evaluated for "constructability" by a different company that actually considered public opposition, and none of that was very encouraging. All projects will garner public opposition, some more than others. DUH.
Damned if you do, damned if you don't.
But, wait a tick here. There's one project on PJM's bid list that doesn't seem to have been evaluated in either "constructability" report. I guess PJM batted it aside instantly, like a distasteful mint.
Atlantic Grid (yes, the ones who have been patiently trying to construct an offshore backbone transmission line to gather offshore wind generation and funnel it to shore at strategic locations) submitted something called the Garden State Reliability Project. It looks like this project was going to do something entirely different than the rest of the contenders.
The Artificial Island-related challenges to grid reliability and operational flexibility that PJM describes in its Problem Statement can be solved with the Garden State Reliability Project (GSRP), a proposed voltage source converter (VSC) high voltage direct current (HVDC) transmission system that connects Artificial Island to the Cardiff AC Substation near Atlantic City, New Jersey. GSRP has the capacity to controllably transmit 1,000 MW of power on its approximately 60-mile underground circuit. GSRP also incorporates static VAR compensator (SVC) facilities. The project is estimated to cost $1,012 million and to be in service by December 31, 2018.
Not only was this project going to fix PJM's little Artificial Island problem, it was also going to tie into Atlantic Grid's New Jersey Energy Link to provide a way to move nuclear power into the congested northern New Jersey load zone. It would also provide backup, baseload power to balance the eventual offshore wind generation's variability.
But, Atlantic Grid's GSRP was proposed to cost 4 times as much as PJM's favored project. However, GSRP provided many other benefits the other project didn't, such as black start capability for Artificial Island, and it was designed to meet future needs, instead of simply fixing today's little problem. Low cost may be the easy choice for today, but sometimes it's just not as efficient.
PJM's "low cost" choices presume that a select set of landowners must be forced to sacrifice their private property for the good of society. When is the rest of society going to make a sacrifice for its own good? Adequately compensating landowners and/or building higher cost projects that don't require as much sacrifice from host landowners should be a sacrifice society is willing to make for its own good! Want cleaner power? Want your lights to stay on? You need to pay for it, not some other landowners miles away who are not benefiting from the project.
And you know what was really innovative about Atlantic Grid's project? It was completely underground and routed along road rights of way! Minimal sacrifice for host landowners, minimal public opposition, minimal risk, minimal time to complete.
Another key GSRP project objective was to demonstrate timely constructability with a practical right of way (ROW) approach and low construction and environmental impact. GSRP is distinguished from high voltage AC line solutions to the grid reliability and operating issues at Artificial Island because GSRP has a more predictable in-service date. GSRP’s HVDC cable system would be buried underground in state and local road ROW, rather than being constructed as an overhead transmission line. Accordingly, building GSRP requires simple rights of access to existing road ROW granted by public entities. In comparison, AC overhead transmission solutions will require new or expanded ROW acquisition involving tree and brush clearing, high towers, aesthetic and environmental impacts, public opposition and litigation. All of these challenges associated with overhead lines cause less predictability and greater cost.
Instead, PJM seems to prefer continuing its old status quo of selecting projects proposed by its incumbents that are environmental, permitting and public opposition nightmares. And we all pay for PJM's mistakes.
PJM officials said that while this solution was comparable to other projects based on such factors as cost, schedule and the ability to address the reliability concerns, the Hope Creek-Red Lion 500-kV line was superior in terms of constructability.
Seriously, PJM? Who's giving you advice about "constructability?" The same geniuses who thought PATH and MAPP were good ideas? Those two projects turned out not to be so "constructable" after all, and have left PJM ratepayers footing a bill for more than $350M for projects that never even put a shovel in the ground!
The New Jersey Board of Public Utilities said PJM’s analysis of the 500-kV option underestimated likely public opposition.
Ya think? Just because the new transmission line parallels an existing one does NOT mean that affected landowners will welcome it with open arms. In fact, these landowners already know what it's like to live with a transmission line across their land, and feel they have already made the ultimate sacrifice for "the public good." They will NOT want another one, and will fight tooth and nail to kill this project.
And, guess what? They'll have plenty of help from other transmission opposition groups that have perfected the art of public opposition. After all, we've had some of the best teachers in the world to show us all the ins and outs of transmission project strategy, and we like to "pay it forward."
So, if you're a landowner in Salem County, New Jersey, who already has a 500kV transmission line in your backyard, check out the map at RTO Insider to see if you're one of "the chosen." I am looking forward to meeting you!