How Much Could PJM's Gaming of the System Cost You?

If you live in Pennsylvania, it could cost you $514M in increased electric bills.  If you're a JCP&L customer in New Jersey, it could cost you $102.6M.  If you're a PSEG customer, you could pay $156.3M more.  Most customer zones in PJM will pay more for their electricity if Pennsylvania and Maryland regulators approve the Transource Independence Energy Connection.  The majority of customers who would see their rates decrease from this project are located in BGE (Baltimore), Dominion (Northern Virginia) and PEPCO (Washington, DC).  The net change to region wide electric rates amounts to just $12M.  And to realize $12M net savings, PJM has ordered a transmission project that will cost more than $500M to build.  Are they nuts?  Or are they nothing more than electric Robin Hoods, robbing the poor, politically disenfranchised power zones to benefit the rich, politically connected ones?  Either way, something stinks!

Stop Transource member, land and business owner, and party to the state cases Barron Shaw tells us where that smell is coming from in a new editorial.

Everyone probably already knows Transource would cause increased rates in Pennsylvania (and if they don't, it's up to you to share your knowledge with your friends and family).  What's new is Barron's revelation about how Transource parent company American Electric Power and PJM Interconnection have gamed the Federal Energy Regulatory Commission into allowing a skewed evaluation process for new market efficiency projects, and how Transource gamed the system it had set up to make its project appear "beneficial" by essentially stuffing 10 pounds of electricity into a 5 pound bag.

So how can PJM propose a project that doesn’t really save any money, hurts Pennsylvania ratepayers so badly, and costs nearly $500 million to build? 
 
The answer can be found at the Federal Energy Regulatory Commission (“FERC”), the entity charged with regulating PJM.  FERC allowed PJM to implement a tiered system, with one set of rules for smaller projects, and one for larger projects.  Delineated by voltage, the lower tier rules allow PJM to completely ignore all zones that see increases, while the higher tier rules consider the net change to system production cost.  Transource realized that this created a loophole.  They designed the IEC to run at the highest voltage possible in the lower tier, but carry an astonishing 24 conductors.  Though run at only 230kv, the IEC has so many conductors it would have more power capacity than most 500kv lines that form the backbone of the grid.  One expert witness said it carried more power than any 230kV line he had ever seen.  Testimony showed that if the line were evaluated as a higher tier project, it probably would never have been proposed.

And if that isn’t gaming the system, then consider this: when PJM asked FERC to make the changes in the assumptions for future planned generation – the changes that affected the benefits last week – they didn’t provide much analysis.  In fact, they only gave FERC one table of examples.  Those examples showed what would happen to eight small projects with and without the proposed changes.  In all eight examples, the new rules reduced and usually eliminated the need for those projects by showing the projects no benefit.  PJM clearly was trying to tell FERC that they had historically been over-estimating the benefits of projects, and that the proposed rules would more accurately reflect lower benefits and result in fewer unnecessary projects.  But just days after the rules were changed, the IEC showed a $250M swing the other direction.  Bait and switch anyone?  You can almost hear the laughter in the PJM hallways.

PJM is a cabal of utilities interested in one objective: making money.  They have manipulated the rules to allow the proposal of a project that will lose hundreds of millions of dollars, destroy preserved farmland, and raise rates for Pennsylvania residents, all while ignoring existing alternatives.  If nothing else, this process has convinced any objective onlooker that PJM needs tighter regulation.  FERC has been too trusting, and the effects are clear.

That's right, with the help of AEP, PJM created a two-tiered evaluation system based on voltage that allowed the lower voltage projects in the bottom tier to take no notice of increased electric costs in parts of the region that wouldn't see benefit from the project.  And once that system was set in place, AEP designed (and PJM selected) a bottom tier "lower voltage" transmission project that actually moves more power than those in the upper tier that would have to balance cost decreases in beneficiary zones against increases elsewhere in the region.  Because a higher voltage project normally used to move this amount of power would not pass a cost/benefit test, Transource created a monster of a lower voltage project in order to pass the test.  One has to wonder whose interests PJM has in mind when it approves adding additional conductors (wires) to a lower voltage project in order to make it move as much power as a higher voltage alternative using less conductors.  Which configuration is actually more efficient?  Better designed?  Able to be upgraded without building new lines?  As non-engineers, we can't really say, however we can depend on the knowledge of power engineers who don't build this kind of project.  Transource IEC is truly one of a kind, from an engineering standpoint.    And this leads me to believe it's probably not the best idea.  What were you thinking, PJM?  Aren't you supposed to have the best engineering staff in our region in order to keep the lights on?  This isn't a great example.  In fact, it looks like PJM is part of some kind of conspiracy, like a cartel, or a cabal, or both.

Read Barron's entire editorial.  He makes it easy to understand PJM's outrageous manipulation and abuse of its authority to enrich its biggest members.  PJM needs to go!