As the Dollar turns: Episode 2

In our last episode of the FERC cost allocation soap opera, we saw a record number of intervenors for this kind of case, and were left breathlessly waiting for FERC to act.

FERC acted on April 8.  ​

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As expected FERC approved PJM's cost allocation filing because projects necessary for reliability are allocated across the region, as PJM proposed.  An attack on the existing cost allocation formula for reliability projects is outside the scope of the proceeding because the formula was approved by FERC long ago.  The only thing FERC was considering here was whether PJM's cost allocations were in line with its approved formula.

Maryland's Office of People's Council tried to make the argument that PJM selected the wrong formula and that the projects were actually public policy projects that should be allocated 100% to the state whose public policy is causing the need for the projects.  FERC rebuffed that argument.

It's all over, save for the requests for rehearing or appeals.  This may happen, but that's a drama for another episode.

But all is not lost, avid followers.  Commissioner Mark Christie filed a delightful concurrence and opined 

...that the time has come for this Commission to take the lead in its convening role to initiate a proceeding, such as a Notice of Inquiry, a series of technical conferences, or by initiating an FPA section 206 proceeding outside this docket, posing such important questions, among others, as: What is the proper definition of a public policy transmission project? Does the definition of public policy transmission project need to be changed for purposes of regional cost allocation? How should public policy transmission projects be cost-allocated in a multi-state RTO? In my view the states themselves need to be at the forefront of deciding these questions, as it is their own state policies that are largely making these questions unavoidable, as these two recent PJM RTEP cases graphically illustrate. 

However, the other two commissioners apparently weren't feeling it, with Commissioner Clements filing her own concurrence stating that she believes FERC should assign costs based on the allocation of reliability and economic (and perhaps other demonstrable) benefits.  In her world, it doesn't matter who causes the reliability issue or why... just that if one is created, everyone pays for it.

Commissioner Christie's concurrence is logical and thoughtful. 

As a factual matter, there is no question that the Commonwealth of Virginia has – as a matter of public policy – for years given generous tax subsidies directly to one very specific type of industry: data centers.  Virginia’s entire I-95 corridor between Northern Virginia and Richmond may accurately be called “Data Center Alley.” Did these tax subsidies cause Data Center Alley? Under the economic principle of “if you want more of something, subsidize it,” it is logical to assume that Virginia’s tax subsidies did incent the construction of more data centers than would otherwise have located in this corridor, although the exact marginal impact remains unknowable. But the Maryland People’s Counsel and Intervenor Newman make a logical argument to consider the necessary construction of reliability lines in PJM due to load growth from the explosion of data center development in Virginia, as driven – at least at the margin – by Virginia’s own public policy of subsidizing data centers. 

But it's not just Virginia causing transmission projects that get allocated to other states, Maryland also gets called out for its "clean energy" policies and the costs for new transmission to take the place of closing coal-fired generators.

These comments logically raise the question whether a law such as Maryland’s mandate to close fossil-fueled generation units located in Maryland has a more direct, intentional and causal impact on the need for new reliability transmission lines than state tax subsidies to high-load customers such as data centers. At a minimum, both Maryland and Virginia state commenters make arguments that are worthy of serious consideration. 

I agree with what Commissioner Christie didn't say... both Virginia and Maryland are hypocrites when it comes to cost allocation.  Neither one wants to accept the costs of transmission made necessary only by their state policies.  Instead, when it benefits them, they want to share the costs with other states whose residents had no part in creating the policies that cause new transmission, like approving more data centers than you can power, or shutting down all your baseload generation and relying on transmission imports from other states to keep your lights on.

Here's the cliffhanger for this episode... Will Commissioner Christie be successful in opening some sort of inquiry or investigation into cost allocation policies when reliability issues are caused by certain state policies?  He seems pretty determined to solve this issue.  Commissioner Christie's concern for ratepayers above all else is much appreciated, especially considering the political swamp he wades through every day to regulate in the public interest.  Regulation is an art, a skill, that comes with a huge learning curve.  We need more experienced state regulators like Commissioner Christie at FERC, and less political appointments.  FERC's work is too impactful to rest in the hands of political animals.