The Atlantic Wind Connection announced the other day that it will proceed with the first stage of its plan for an undersea transmission backbone located 12 miles off the Atlantic Coast.  In addition to providing a super highway for offshore wind generation to reach the east coast population centers, AWC also offers additional transmission capacity to import cheaper generation into northern New Jersey, where rates are higher.  Addition of transmission capacity to import cheaper generation is the basis for this first leg of a project that is proposed to extend from northern New Jersey to southern Virginia.  Once completed in whole, AWC is intended to connect up to 7,000 MW of offshore wind, enough power to serve approximately 1.9 million households.

However, AWC has faced, and will continue to face, the caterwauling of incumbent generators and transmission owners and the stone face of the PJM cartel, who have been doing their best to kill the project.

AWC directly competed with PATH and MAPP and spent years sitting on the sidelines while the incumbent transmission owners behind these misguided attempts to increase transmission capacity to New Jersey wasted around a half billion dollars of electric ratepayer funding on their loser projects.

Now AWC is ready to roll up its sleeves and get started.  However, the PJM cartel is still behaving badly and doing its best to sideline the project.  In addition to having to face the hurdle of having AWC designated a required transmission upgrade in PJM's expansion plans, there's a whole lot of nonsense underway about who is going to pay for the project.  For years, PJM's incumbent transmission owners thought nothing of having their projects intended to import cheaper coal-fired generation to the east coast socialized throughout PJM's 13-state region.  Now that a company who's not a part of the incumbent club wants to socialize the cost of its project, the incumbents are making fools of themselves at FERC arguing about cost allocation.

Although it's really not that complicated, clueless blogger Matt Wald at the NY Times can't grasp transmission cost allocation issues.  He screws it up in this article, and then follows with a more confused "explanation" in this one.

Here's what Matt doesn't understand.  Historically there have been only two drivers that necessitated transmission expansion within PJM:  1)  Reliability, where a project is necessary for continued reliable operation of the grid; and 2) Economic, where a project is necessary to import cheaper generation to an area with high generation prices in order to lower prices.  Any projects meeting either (or both) criteria were included in the regional plan and the costs were socialized among all consumers in the region.  A new driver has now emerged -- individual state renewable power policy goals.  PJM has, so far, stood firm behind the states' insistence that renewable drivers become the financial responsibility of the state or states whose policies trigger them.  However, there's a proposal in the works that would define a multi-driver project cost allocation method to equitably assign costs.

The problem is that nobody can agree on an equitable split and many parties continue to build on previously flawed cost allocation practices known as "postage stamp."  Postage stamp cost allocation socializes the cost of a big transmission project to all consumers in the region under the premise that they all benefit equally from the project.  This is never true, but transmission owners, PJM and FERC have pretended it is by making up regional benefits that can't quite be calculated.

When applied to reliability projects, region-wide benefits are slippery simply because PJM is so large.  A reliability problem necessitating upgrades in Baltimore or Newark wouldn't really provide a benefit to consumers in Chicago, except that without it, if the PJM grid massively fails, cascading outages could possibly affect them.

However, when postage stamp is applied to economic projects, it completely fails.  An economic project lowers prices for a subset of regional customers, however all customers in the region pay to construct and operate it.  Adding insult to injury, when prices are lowered via new transmission lines it also increases electric prices at the other end of the line.  Solving economic problems with transmission simply levelizes prices so that all consumers pay a relatively similar price.  Now how is that just and reasonable for a larger region to pay for the privilege of increasing their prices to benefit only a smaller subset of the region?  It's not, and this argument has been dragging on in the courts and at FERC for years.

Now throw in renewable drivers.  Would it be just and reasonable for the larger region to pay to meet the renewable policies of a smaller subset of the region such as one state?  Of course not.  Policy in one state cannot legally become the financial responsibility of citizens of a different state.

The more broadly the cost of billion dollar transmission projects can be socialized, the better their chance of success.  While most consumers are so blissfully unaware of the steady increase in their electric rates caused by new transmission because it only amounts to a couple bucks, if the real beneficiaries of a transmission project had to pay for it by themselves, they would certainly notice because the cost would be astronomical.  In fact, the cost of the project would obviate any savings and perhaps cause state policy revisions prohibiting imported renewables that come with expensive transmission project price tags.  Therefore, those who stand to profit from exporting renewables are trying to hide the huge costs of their projects by socializing them among consumers who do not benefit.  This has led to ridiculous claims that projects driven solely by a need for imported renewables provide additional reliability and economic benefits for the entire region and therefore should be widely socialized.  But for the renewable driver, these projects would not exist, therefore any "benefits" are unnecessary, sort of like getting a bill for a Christmas fruitcake.  You didn't ask for it, you didn't want it, and now they're asking you to pay for it?

This is the cost allocation problem that Matt Wald doesn't understand.  AWC understands, and while testimony submitted with a recent FERC filing explains how the project will provide more than renewable energy benefits, it toes the line of believability.  This testimony was attached to a rather painful, long winded brief written mostly in FERCenese (thanks, Scott!) so I have spared you that part of it.  Just read the testimony -- same facts, less words... and even some pictures.

While a lot of what's in the testimony has validity, AWC just can't resist trying to sweeten the pot and make crap up.  I wish they'd just stick to the easy truth.  They almost had me, until I found this quote on their website: 

"The AWC project not only reduces the need to build many lower-capacity transmission lines, but relieves grid congestion in one of two National Interest Electric Transmission Corridors which were deemed to have significant transmission network congestion and need speedy creation of transmission capacity."

Psst... AWC, the National Interest Electric Transmission Corridors were vacated back in 2011.  Fix your stuff!

If AWC manages to get a seat at the big-boys' table at PJM and overcome the cost allocation issues, the U.S. may finally move ahead with offshore wind and create a vibrant renewable energy economy in nearby east cost states.  However, acceptance of AWC's cost socialization schemes could also provide a doorway for other renewable transmission projects proposing to build thousands of miles of new transmission lines coast-to-coast to export inferior wind resources from the midwest.  That proposal makes no sense, economically or physically.  And we simply cannot afford both.