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:
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:
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.
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.
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