First, neither Transource nor PJM considered minimizing the environmental impacts of new
transmission ROW and new transmission towers proposed for the IEC. As discussed later in my testimony, there are two existing available PPL transmission lines on existing rights-of-way, recently completely rebuilt with towers that have the capability of carrying an additional 230 kV circuit in the vicinity of the IEC East Project Line. PJM did not consider trying to use these as part of the IEC, because such use was not included as part of any of the proposals submitted to PJM. Such use could significantly reduce the environmental impact of this portion of the IEC.

Q. Transource witness Ali testified that an additional benefit of this Project was that it would also improve reliability. How do you respond?

A. Any major new piece of transmission line infrastructure will provide additional paths for power to flow, and thus could potentially improve reliability. However, there is no stated reliability need here, based on the Company’s filed testimony.

PJM solicited proposals to address congestion on the AP South Reactive Interface (“APSRI”) as part of its 2014/15 Long Term Proposal Window. The APSRI is a set of four 500 kV transmission lines running from West Virginia into Maryland and Virginia. If the sum of the power flows over these four lines exceeds certain calculated limits, then the electric system can be susceptible to low voltages or voltage collapse under certain operating conditions. The power flow across the APSRI must be kept within these limits. Sometimes that means that less expensive-to-operate generating units outside of Maryland and Virginia will be backed down to generate less power, while more expensive-to-operate generating units inside Maryland and Virginia will be ramped up to generate more power, thus resulting in decreased power flows across the APSRI and increased generation costs for Maryland, DC, and Virginia customers.10 Transource witness Paul McGlynn references the PJM Independent Market Monitor, which has estimated that congestion costs on the APSRI were about $800 million from 2012 through 2016. The IEC reduces congestion costs on the APSRI by providing an alternative path to load centers in Maryland, DC, and Virginia, connecting them mainly to lower-cost generating units located outside of these areas.

As Table 3 shows, the annual congestion costs due to the AP South Interface have been sharply declining since 2014 both in absolute terms and as a percentage of PJM total congestion costs. The 2017 annual congestion cost due to the AP South Interface has decreased by more than 95% from 2014.  Table 3 also shows the total decline in PJM
congestion costs since 2014. For 2014, total PJM congestion is $1.98 billion. For 2017, total PJM congestion has decreased to $697 million. This means that total congestion on PJM’s transmission system has decreased by more than 60% over the past three years.

One of the major shortcomings of PJM’s process of determining the B/C ratios of the IEC Project is that the costs of the project elements have not been updated since the project was initially evaluated in 2015.

Summer peak loads and peak load forecasts have been declining across PJM’s Mid-Atlantic area for at least the past five years or more. This area includes loads in New Jersey, Maryland, Delaware, DC, and Pennsylvania, some of which are loads that contribute to the projected loads on the IEC Project transmission lines.

In recent months, there have been proposals of new renewable resource generating units
proposed to be located in Maryland and Virginia on the load-side of the APSRI. On July
24, 2018, Dominion Energy announced new plans to add 3,000 MW of new solar and wind generation during the 2020s. The Dominion announcement also referenced plans to add 240 MW of solar generation to be located in Virginia. There is no indication that the effects of any of these recent proposals, which could reduce the amount of load in Maryland and Virginia potentially being served over the APSRI, have been reflected in PJM evaluations of the IEC Project.

There are also non-transmission alternatives that could address the load requirements in the MD-DC-VA area and reduce any congestion levels that currently exist in the Project area and without the impact on land, the environment and communities that have been identified in the public input hearings and site views.

The Commission finds that a procedural conference is now appropriate to discuss filing deadlines for a procedural schedule, to include supplemental pre-filed testimony and a date for a supplemental evidentiary hearing.

• Transource’s filings in this case do not consider the effects of recent changes in Pennsylvania law that should affect the Commission’s review and analysis of the proposed projects.
• Transource’s East and West Applications each identify only one reasonable alternative route to its selected routes. The route selection process apparently failed to consider other routes that would be likely to result in lower cost and lessened environmental impacts.
• PJM’s so-called “benefit-cost” analysis for non-reliability projects like the IEC Project does not properly evaluate the benefits of a proposed project. The analysis completely ignores increases in costs that would be incurred by zones outside of the region benefiting from a project. That is, the economic analysis used by PJM and Transource completely ignores the fact that the lower-cost power that would flow into certain regions is already being used elsewhere.
• While the IEC Project would reduce costs in portions of PJM, the overall effect on PJM would be that the costs of the IEC Project would greatly exceed the project’s benefits. Indeed, accepting all of Transource’s assumptions shows that every dollar invested in the IEC Project would produce less than three cents of benefits for PJM.
• The effects on Pennsylvania consumers would be even more severe than the impact on PJM. Over a 15-year period, consumers in Central and Eastern Pennsylvania would incur increased power costs of more than $340 million while consumers in Western Pennsylvania would receive lower-cost electricity valued at only $2 million.

If a zone has a positive ΔNLP – that is, its power costs increase over the 15-year study period – the zone is dropped from the calculation. Only zones whose discounted sum of ΔNLP is negative – that is, power costs decreased over the 15-year period – are included in the benefits calculation.

For this example, I will assume a very simplified system with only three zones. The 15-year NPV of ΔNLP shows the following: Zone 1 has a benefit (lower ΔNLP) of $100; Zone 2 has a benefit of $50; and Zone 3 has a detriment (higher ΔNLP) of -$110. Overall the three zones experience net savings of $40 ($100 + $50 - $110). For purposes of PJM’s analysis, however, Zone 3 would be dropped from the calculation and the project would have a “benefit” of $150.

To over-simplify a bit, the IEC Project will lessen the alleged electrical barriers (congestion) and enable lower-cost electricity to reach the higher cost areas of MD-DC-VA. To be clear, MD-DC-VA have plenty of power, so the IEC Project has no reliability benefit; but costs to those areas can be reduced if additional power can be imported cost effectively from lower-cost areas.

Q. Does the so-called benefit-cost methodology required by PJM and used by Transource meet the requirements of a benefit-cost analysis?
A. No. The PJM methodology used by Transource fails to capture all of the benefits and costs associated with the IEC Project.

...the PJM methodology ignores the negative consequences to utilities (and their customers) outside the region to be benefited. That is, when calculating the benefits of the IEC Project, Transource calculated the reduced power costs (primarily in MD-DC-VA) from being able to import lower-cost power into that region; but it failed to subtract from those benefits the higher costs that would result in other regions (including Pennsylvania) because they would no longer have the benefit of that same lower-cost power.

The spreadsheet model includes a calculation of the net benefit or cost for each control area within PJM. Incredibly, though, when it comes time to determine a project’s “benefits” only those regions that would experience reduced  costs are included in the calculation. All regions whose costs would increase as a result of a project are simply ignored.

When PJM first reviewed the IEC Project, it found Project benefits of $1,188 million, as shown on the attachment to OCA II-14 (attached as Schedule SJR-1). This represents the present value of 15 years of savings in Net Load Payments (“NLP”) (that is, energy costs). The Schedule shows, however, that this figure completely ignores the zones where energy costs would increase as a result of the IEC Project.

In the table provided by Transource, a positive number represents an increase in power costs (that is a net cost or detriment from the IEC Project) and a negative number represents lower power costs from the IEC Project (a net benefit). Take the first row as an example. AECO is the Atlantic Electric zone within PJM (the greater Atlantic City, NJ, area). This shows that over the first 15 years with the IEC Project in service, power costs would increase by [$17.90] million for Atlantic City area customers if the IEC Project is completed. Simply, this means that AECO currently is able to use slightly more of the lower-cost power than is economically optimal because of constraints that keep some of that power from flowing into MD-DC-VA.

The net efficiency gains are the only true measure of the IEC Project’s benefit. The approach used by the Company assumes that the lower-cost power that flows into MD-DC-VA would not otherwise confer any economic benefit but for the construction of the IEC Project. In reality, though, that lower-cost power is being used in other regions of PJM (primarily Pennsylvania and New Jersey).  Thus, the benefits from the IEC Project should be measured as the reduction in power costs in MD-DC-VA, offset by the increase in power costs in regions like parts of Pennsylvania where power costs will increase.

Q. If the IEC Project provides net benefits of $17 million over 15 years, should it be constructed?

A. No. As of September 2018, the estimated construction cost is $366 million, resulting in an estimated 15-year cost (PVRR) of $498 million. Thus, the IEC Project would cost significantly more than the benefits it would provide, resulting in a benefit-cost ratio of only 0.03. That is, for every dollar spent on the IEC Project, it would provide only three cents worth of benefits. Because the IEC Project is being built solely to reduce power costs, and not to provide any reliability benefits, the IEC Project is not economical and
should not be built.

The IEC project would cost $498 million over 15 years, but it would lower power costs by only $17 million, resulting in a net loss to PJM utilities of more than $480 million. Thus, PJM as a whole would experience a net loss of $32 million per year for each of the first 15 years of the IEC Project. The Project is not economical for PJM’s utilities (and the consumers who purchase electricity from those utilities) and should not be constructed.

Thus, when including the costs of paying for the IEC Project, the net effect on Pennsylvania would be to have power costs increase by approximately $367 million over the next 15 years, or by more than $24 million per year.

After all, it would not be fair for customers in one area to consistently pay higher prices than others do simply because the system’s design prevented some customers from accessing the lowest-cost electricity.

For many years, some customers in the mid-Atlantic region, those in areas of Maryland, Northern Virginia and the District of Columbia, have had to pay comparatively higher prices than customers in other areas have, because bottlenecks in the interstate transmission system have not allowed an efficient flow of the lowest-cost power into the zone.

PJM recently completed its annual review of the Transource project. Our thorough analysis of the many factors that go into benefits and costs concluded that the benefits continue to justify the costs.

The analysis considered factors such as recent load and congestion forecasts, current cost estimates, power flow projections, topology, interregional modeling, future fuel prices and generation interconnections.

During our recent review, PJM found that the Transource project also will address significant reliability issues that are emerging on the regional transmission system, including the potential overload of a key high-voltage line that carries electricity across the Pennsylvania-Maryland border.

Without the additional transmission capacity provided by the Transource project, the system could face serious violations of federal reliability standards, which would require additional measures to address.

The interstate high-voltage transmission system is a shared resource, and consumers including homeowners, tenants, businesses and industrial plants throughout the PJM footprint benefit from a robust network that provides reliable and affordable electricity across the region.

The incidental‐benefits tail mustn’t be allowed to wag the primary‐benefits dog.

C. Prior to commencing construction of the direct current component of the Grain Belt Project in Kansas, Grain Belt Express will obtain the state or federal siting approvals required by law to begin construction on the entirety of the direct current portion of the Grain Belt Project outside the state of Kansas. For the avoidance of doubt, transmission line siting approvals from the Missouri, Illinois, and Indiana state utility commissions shall be sufficient to satisfy this condition.
D. This Order is conditional upon the cost of the Project and any AC Collector System owned by Grain Belt Express not being recovered through the SPP cost allocation process or from Kansas ratepayers.
E. Grain Belt Express is allowed five years from the date of the Commission's Order to begin construction of the project in Kansas or otherwise be required to reapply.
C. (again!) The Commission requires the Applicant to submit quarterly reports detailing the progress and costs of the project and a final report once construction is complete.

While it is the transmission developer’s responsibility to work with state and local planning authorities to identify a designated route that can balance the interests of all impacted parties, it is PJM’s responsibility to identify the need for such a project in the first instance. Understanding both the cost and societal impact a project may have, I assure you we do not embark on this responsibility lightly.

1.7 Obligation to Build. (a) Subject to the requirements of applicable law, government regulations and approvals, including, without limitation, requirements to obtain any necessary state or local siting, construction and operating permits, to the availability of required financing, to the ability to acquire necessary right-of-way, and to the right to recover, pursuant to appropriate financial arrangements and tariffs or contracts, all reasonably incurred costs, plus a reasonable return on investment, Transmission Owners or Designated Entities designated as the appropriate entities to construct, own and/or finance enhancements or expansions specified in the Regional Transmission Expansion Plan shall construct, own and/or finance such facilities or enter into appropriate contracts to fulfill such obligations.