PJM Interconnection has set the project alarm clock for transmission company Transource to get its Independence Energy Connection built. Can the company really get this project permitted and built amidst formidable opposition and beat the clock?
The DESIGNATED ENTITY AGREEMENT Between PJM Interconnection, L.L.C. And Transource Energy, LLC, for itself and on behalf of Transource Maryland, LLC and Transource Pennsylvania, LLC sets certain milestones the company must meet:
- On or before June 1, 2018, Designated Entity must demonstrate that any applications for any
required state or local certificate(s) of convenience and necessity have been submitted or such certificates have been ruled as not required by the applicable states or local governmental authorities. - On or before December 1, 2019, Designated Entity must demonstrate that all required federal,
state, county and local site permits have been acquired. - On or before December 1, 2019, Designated
Entity must demonstrate that all major electrical equipment has been delivered to the project site. - On or before January 31, 2020, Designated Entity must demonstrate that at least 20% of Project site construction is completed.
- On or before June 1, 2020, Designated Entity must: (i) demonstrate that the Project is completed in accordance with the Scope of Work in Schedules B of this Agreement; (ii) meets the criteria outlined in Schedule D of this Agreement; and (iii) is under Transmission Provider operational dispatch.
Getting applications filed with state utility commissions is no big deal. Any transmission monkey can do that. But acquiring the permits is a different story. It can take years to successfully acquire permits, in fact, Transource parent company AEP likes to whine about how it took sixteen (16) long years to get one of its multi-state transmission projects approved (when it's convenient to whine about such, of course). PJM's schedule says the project must be fully permitted a mere two and a half years from now. If there's anything certain about a regulatory permitting process, it's delay. Any opposition to a company's application for a permit mucks up the process and causes delay, and it would be rare indeed if Transource's regulatory applications were unopposed.
And here's another goodie -- Transource must purchase and have all major electrical components on site by the permit deadline. This means that the company must spend money engineering the project and purchasing very expensive components, even before it receives a permit. What happens if the company spends millions purchasing components for a project that is eventually denied by a public utility commission? No worries, the company has received a guarantee from the federal government that it may recover the cost of those components from you in your electric bill, even if the project is later abandoned and the components are never used! Now that's some pretty arrogant assuming -- assuming a permit must be issued because the ratepayers are on the hook to pay for the project, might as well construct it. And a mere month after receiving its permit, the company must have at least 20% of the project constructed. And then a mere 6 months later, the project must be completed and delivering energy. Obviously there's a timing issue here and PJM expects the company to secure its permits well before the December 1, 2019 deadline in the agreement. If Transource doesn't get its permits until December of 2019 (and remember, it can't build anything or condemn any right of way until it has its permits), there's just no way it can meet the construction deadlines. Tick tock!
So, what happens if Transource can't meet these milestones?
And here's another goodie -- Transource must purchase and have all major electrical components on site by the permit deadline. This means that the company must spend money engineering the project and purchasing very expensive components, even before it receives a permit. What happens if the company spends millions purchasing components for a project that is eventually denied by a public utility commission? No worries, the company has received a guarantee from the federal government that it may recover the cost of those components from you in your electric bill, even if the project is later abandoned and the components are never used! Now that's some pretty arrogant assuming -- assuming a permit must be issued because the ratepayers are on the hook to pay for the project, might as well construct it. And a mere month after receiving its permit, the company must have at least 20% of the project constructed. And then a mere 6 months later, the project must be completed and delivering energy. Obviously there's a timing issue here and PJM expects the company to secure its permits well before the December 1, 2019 deadline in the agreement. If Transource doesn't get its permits until December of 2019 (and remember, it can't build anything or condemn any right of way until it has its permits), there's just no way it can meet the construction deadlines. Tick tock!
So, what happens if Transource can't meet these milestones?
Designated Entity shall meet the milestone dates set forth in the Development Schedule in Schedule C of this Agreement. Milestone dates set forth in Schedule C only may be extended by Transmission Provider in writing. Failure to meet any of the milestone dates specified in Schedule C, or as extended as described in this Section 4.1.0 or Section 4.3 .0 of this Agreement, shall constitute a Breach of this Agreement. Transmission Provider reasonably may extend any such milestone date, in the event of delays not caused by the Designated Entity that could not be remedied by the Designated Entity through the exercise of due diligence, or if an extension will not delay the Required Project In-Service Date specified in Schedule C of this Agreement;
provided that a corporate officer of the Designated Entity submits a revised Development Schedule containing revised milestones and showing the Project in full operation no later than the Required Project In-Service Date specified in Schedule C of this Agreement.
PJM, the "transmission provider" can extend the milestones as long as such extension doesn't delay the in-service date of the project (the date the project is operational - June 2020). Failure to meet milestones that are not extended results in breach.
Except as otherwise provided in Article 10, a Breach of this Agreement shall include:
(b) The failure to meet a milestone or milestone date set forth in the Development
Schedule in Schedule C of this Agreement, or as extended in writing as described in Sections
4.1.0 and 4.3.0 of this Agreement;
In the event the breach isn't cured:
In the event that a breaching Party does not cure a Breach in accordance with Section 7.3 of this Agreement, Transmission Provider shall conduct a re-evaluation pursuant to Section 1.5.8(k) of Schedule 6 of the Operating Agreement. If based on such re-evaluation, the Project is retained in the Regional Transmission Expansion Plan and the Designated Entity's designation for the Project also is retained, the Parties shall modify this Agreement, including Schedules, as necessary. In all other events, Designated Entity shall be considered in Default of this Agreement, and this Agreement shall terminate in accordance with Section 8.1 of this Agreement.
So, when Transource fails to meet project milestones, PJM will "re-evaluate" this project and could decide it's no longer needed. No harm, no foul, no skin off their nose, the ratepayers are on the hook to pay for it whether it's constructed or not. Just one, big, expensive "oops" by transmission planners who should be held to higher standards.
In fact, PJM can re-evaluate and cancel this project at any time, milestones or no milestones:
In fact, PJM can re-evaluate and cancel this project at any time, milestones or no milestones:
In the event that: (i) pursuant to Section 1.5.8(k) of Schedule 6 of the Operating Agreement, Transmission Provider determines to remove the Project from the Regional Transmission Expansion Plan and/or not to retain Designated Entity's status for the Project; (ii) Transmission Provider otherwise determines pursuant to Regional Transmission Expansion Planning Protocol in Schedule 6 of the Operating Agreement that the Project is no longer required to address the specific need for which the Project was included in the Regional Transmission Expansion Plan; or (iii) an event of force majeure, as defined in section 10.0 of this Attachment KK, or other
event outside of the Designated Entity's control that, with the exercise of Reasonable Efforts, Designated Entity cannot alleviate and which prevents the Designated Entity from satisfying its obligations under this Agreement, Transmission Provider may terminate this Agreement by providing written notice of termination to Designated Entity, which shall become effective the later of sixty calendar days after the Designated Entity receives such notice or other such date the FERC establishes for the termination.
Considering that this is a market efficiency project, chances of it still being needed several years down the road are slim to none. PJM recognizes any "need" for this project has a very short shelf life, judging by its own project schedule.
A market efficiency project is intended merely to increase transmission capacity to a certain area in order to allow cheaper power to reach the area and lower electricity prices for the lucky recipients. The cost of a transmission project is assigned to certain areas that use or receive benefit from the project. More than 80% of the Transource project cost is assigned to electric ratepayers in the Baltimore Gas & Electric, PEPCO, and Dominion service areas. This includes Baltimore, Washington, DC, and its suburbs, and northern Virginia. That's who's going to receive more than 80% of the benefit and the cheaper electricity. This project is nothing more than the idea that cheap gas-fired electric generation in Pennsylvania can be piped to the big eastern cities. Benefits to the citizens in the bullseye of this project who are expected to play host to new high-voltage transmission lines will be minimal.
The concept of electric transmission "congestion" is a constantly shifting problem. While Pennsylvanians can currently get plenty of cheap power generated in their state, it bottle necks before it can flow to the eastern cities. Once the bottle neck is removed, Pennsylvanians must compete with the big cities for the same supply of electricity, which tends to levelize prices between the two areas. While the price of electricity in the expensive cities may fall, the price of electricity in Pennsylvania may rise. It's simple supply and demand. However, electricity generation isn't static -- new generators come online, and old generators go offline. If the Transource project isn't built, perhaps the big cities will build their own new, cheap gas-fired generators. The lights won't go out. How much of PJM's transmission plan is sheer market manipulation that would solve itself without intervention?
The schedule is tight, the stakes are high. Transource has to beat its early milestones in order to meet its later ones. Opposition causes delay. Can Transource beat the clock? Tick tock.
A market efficiency project is intended merely to increase transmission capacity to a certain area in order to allow cheaper power to reach the area and lower electricity prices for the lucky recipients. The cost of a transmission project is assigned to certain areas that use or receive benefit from the project. More than 80% of the Transource project cost is assigned to electric ratepayers in the Baltimore Gas & Electric, PEPCO, and Dominion service areas. This includes Baltimore, Washington, DC, and its suburbs, and northern Virginia. That's who's going to receive more than 80% of the benefit and the cheaper electricity. This project is nothing more than the idea that cheap gas-fired electric generation in Pennsylvania can be piped to the big eastern cities. Benefits to the citizens in the bullseye of this project who are expected to play host to new high-voltage transmission lines will be minimal.
The concept of electric transmission "congestion" is a constantly shifting problem. While Pennsylvanians can currently get plenty of cheap power generated in their state, it bottle necks before it can flow to the eastern cities. Once the bottle neck is removed, Pennsylvanians must compete with the big cities for the same supply of electricity, which tends to levelize prices between the two areas. While the price of electricity in the expensive cities may fall, the price of electricity in Pennsylvania may rise. It's simple supply and demand. However, electricity generation isn't static -- new generators come online, and old generators go offline. If the Transource project isn't built, perhaps the big cities will build their own new, cheap gas-fired generators. The lights won't go out. How much of PJM's transmission plan is sheer market manipulation that would solve itself without intervention?
The schedule is tight, the stakes are high. Transource has to beat its early milestones in order to meet its later ones. Opposition causes delay. Can Transource beat the clock? Tick tock.
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