Congestion is Fleeting, Transmission is Forever

The Baltimore Sun published an editorial last week calling for a pause and re-evaluation of the Transource Independence Energy Connection transmission project.

Do we really need it?

Elected officials, including Maryland Governor Larry Hogan, Maryland General Assembly Delegates Szeliga and Reilly, Pennsylvania House representatives Kristin Phillips Hill and Stan Saylor, have all joined citizens of both states in calling for cancellation of the IEC project.

This project never was a good idea in the first place.  It was PJM's first competitive market efficiency project, where PJM floated a congestion "problem" and eager transmission owners (and wannabe transmission owners) submitted ideas for solutions they could build if selected.  PJM selected what it felt was the best idea, and four years later here we are.  Four years.  That's a long time in the energy world, where needs are constantly fluid.  Generators going on and off line, transmission upgrades, and changing load constantly alter the need for new transmission.  Attempting to make a changing market "more efficient" by adding new transmission, and then waiting more than six years to actually bring the new transmission online is an exercise in futility.  It's nothing but a cash cow for the transmission company lucky enough to be guaranteed to recoup its investment (plus interest) in such an unnecessary pursuit.  PJM's market efficiency competitive transmission process is deeply flawed and can probably never work.  Transmission just takes too long, while the "congestion" proposed to be alleviated is a constantly changing and fleeting issue.

The PJM Market Monitor (MMU), Monitoring Analytics, issues yearly reports that cover congestion in the region, along with other issues to make a determination whether PJM's markets are competitive.  The MMU's function is to monitor and report on PJM markets and make recommendations to keep markets competitive.  PJM is regulated by the Federal Energy Regulatory Commission (FERC).  The MMU describes congestion:

Congestion is neither good nor bad, but is a direct measure of the extent to which there are multiple marginal generating units dispatched to serve load as a result of transmission constraints. Congestion occurs when available, least-cost energy cannot be delivered to all load because transmission facilities are not adequate to deliver that energy to one or more areas, and higher cost units in the constrained area(s) must be dispatched to meet the load. The result is that the price of energy in the constrained area(s) is higher than in the unconstrained area.

Congestion cannot ever be completely eradicated.  Lowering congestion in one area may increase congestion elsewhere.  Building expensive, new transmission projects to lower congestion in PJM sub-regions is not the answer.  Sometimes the answer is incremental upgrades to existing transmission, or the building of new generators closer to load.  PJM does not order the construction of new generators.  PJM does order the construction of new transmission.  And when the only tool you have is a hammer, every problem becomes a nail.  The MMU has made the following recommendation every year:

The MMU recommends the creation of a mechanism to permit a direct comparison, or competition, between transmission and generation alternatives, including which alternative is less costly and who bears the risks associated with each alternative.

But PJM has yet to adopt this recommendation.  The millions of dollars wasted on the Transource IEC should become a catalyst to get this done now.  Would new generation in the DC/Baltimore/No.Va. area be cheaper than construction of a greenfield transmission project in Pennsylvania and Maryland when all the costs to the new transmission area that will not benefit from the project are figured in?  Maybe, but we'll never know.  PJM refuses to even acknowledge these costs, preferring instead to limit its "cost" of the project to actual dollars spent building the project and making low "compensation" payments to landowners affected.  But what about the increase in energy costs to those customers?  What about the economic costs to those communities from shouldering the burden of new infrastructure?  What about the devaluation of land and conservation easements that the communities have invested in with taxpayer dollars?  None of that is figured in by PJM.  It's high time true costs are calculated for communities that receive no benefit from new "fly over" transmission projects that provide little to no economic benefit.  The benefit to the whole cannot continue to overrule the disadvantages to individual communities.

Attempting to monkey with congestion is an attempt to levelize prices across a region.  Should the same energy costs to customers near a coal-fired generator in Pennsylvania be available to customers in Washington, D.C., who closed all their dirty electricity generators years ago?  Shouldn't there be a price to pay for that?  If congestion relief lowers prices in Washington, D.C., then prices must rise elsewhere.  Think of it as a teeter-totter.  As prices fall somewhere, they must go up somewhere else.  The MMU says:

For example, congestion across the AP South Interface means lower prices in western control zones and higher prices in eastern control zones. Load in western control zones will benefit from lower prices and receive a congestion credit (negative load congestion payment). Load in the eastern and southern control zones will incur a congestion charge (positive load congestion payment).

If you reverse that, no more congestion credits in the western zones.  Everybody pays the same price in both eastern and western zones.

The MMU's annual State of the Market Report has a section devoted to congestion costs tracked over the year, as well as an analysis of current transmission planning. 

Let's take a look at the MMU's tracking of congestion costs over the past 10 years:

The 2014 State of the Market reported AP South as the biggest congestion constraint in the region.

The AP South Interface was the largest contributor to congestion costs in 2014. With $486.8 million in total congestion costs, it accounted for 25.2 percent of the total PJM congestion costs in 2014.

And in a knee jerk response, PJM opened its competitive market efficiency transmission window seeking proposals to mitigate the constraint.  Transource IEC was the winning bid.

Fast forward 4 years and the 2017 State of the Market reported

The Braidwood - East Frankfort Line was the largest contributor to congestion costs in 2017. With $43.4 million in total congestion costs, it accounted for 6.2 percent of the total PJM congestion costs in 2017.

This constraint is nowhere near AP South.  It's out in the far western part of the PJM region.  The AP South congestion has fallen to 6th place on the congestion list with a total of $21.6M, or 3.1% of the total PJM congestion cost.  Do we need a $320M transmission project to fix this (plus 10.4% interest yearly on the unpaid balance for a pay-back period of 40 years)?

Of course we don't.  But the last one to realize this seems to be PJM.  If PJM is so slow to react to changing energy markets, perhaps it shouldn't plan and order market efficiency projects that take more than 6 years to come to fruition.  Perhaps it needs to adopt the MMU's long-standing recommendation to change the way it evaluates congestion fixes.  Perhaps PJM is simply in love with its processes and has forgotten its mission to benefit consumers.

It's time to cancel the Transource Independence Energy Connection.