How PJM Puts Its Thumb On The Scale For Transmission

When transmission companies draw their proposals as a line on a map, they randomly intersect with all sorts of people.  Some intersections are good for the company,  some are bad, and some are truly horrible.  Gotta wonder if Transource's pencil broke, or its pen ran out of ink, when it tried to draw a line over Shaw Orchards?  Barron Shaw is someone Transource probably wishes they'd avoided.  He's maybe not the common fruit farmer they expected...

Barron has quickly mastered the world of electric transmission.  Transource and PJM aren't pulling anything over on him.  Much of what transmission owners say, and pretty much all of what PJM says, is intended to befuddle.  If a regulator isn't sure what the witnesses are saying, they can do one of two things:  1)  Admit they have no idea what the witness is talking about and risk looking stupid; or 2)  Just presume the witness is right and nod their head sagely.  One happens rarely, two happens a lot, in fact PJM counts on two happening pretty much all the time.  As a self-designated grid oracle, PJM shall not be questioned.  And then some miscreant drew a line over Barron's property.

The Surrebuttal Testimony of Barron Shaw makes several stunning observations about  how Transource parent company AEP has been in cahoots with PJM to manipulate process in order to create a false benefit-cost ratio and "need" for the Independence Energy Connection project.

But first Barron tackles another instance of PJM trying to change his testimony by "misunderstanding" it and then restating it incorrectly.  These witnesses attempt to claim that PJM has some magic authority over transmission that is so divine that it need not be re-examined by state utility commissions.  Instead, they seem to suggest that the regulators simply rubber stamp whatever PJM proposes and bow to its superiority.  Barron reminds that the Pennsylvania PUC is solely responsible for its own energy policy, as well as transmission siting and permitting.

Barron then launches into a detailed discussion of the way PJM changed procedures over a number of years (and was cheered on by AEP while it did so) in order to set up the "perfect storm" market efficiency project. Barron has taken the bits and pieces of information provided by PJM and Transource and aligned them with other pieces of the puzzle to determine that the true benefit cost ratio for the IEC is only 0.74, far below PJM's 1.25-1 threshold for a market efficiency project.

PJM proposed a change to the way market efficiency projects are evaluated. PJM members were frustrated by the fact that few large projects were passing the metrics of their old formula. So they proposed relaxing the rules so that more projects would pass.

First PJM changed the way it calculated "benefits" for market efficiency projects to filter out any consideration of cost increases to net out cost decreases in the calculation.  If a market efficiency project causes costs to increase in certain zones, those increases are ignored.  The only number that matters in PJM's calculation is the decreased costs in select zones.  Of course this skews the benefits calculation enormously.  PJM also changed its rules to include a whole bunch of proposed generation that may never be built in its calculation, which made it look like there would be more benefit than there actually will be.

PJM's changes also made the benefit calculation dependent upon the voltage of the project, with lower voltage "local" projects relying on numbers that don't include cost increases, while higher voltage "regional" projects could include a percentage of cost increases in their benefit calculation.

The implications of these changes are the primary reasons that this project is still being proposed by PJM today. Before this change, the benefit side of the B/C ratio was 75% based on the benefit across the entire PJM footprint (PJM uses the word “socialized.”) If a proposed project, such as the IEC, resulted in lower-rate “winners” and higher-rate “victims”, 75% of the calculation was made on the basis of netting the winners against the victims. After the change, 100% of the calculation for Lower Voltage projects, and 50% of the calculation for Regional projects, is based solely on the savings to the “winners”, without consideration to the higher rates incurred by the “victims.”

And is IEC a regional project or a lower voltage project?  It supposedly qualifies as a "lower voltage" project because it is not double circuit 345kV or above.  IEC is a double circuit 230kV project, supposedly a lower voltage project that wouldn't include any cost increases in its "benefit" number.  However, Barron discovered IEC would actually carry more power than a double circuit 345-kV line and therefore is actually a regional project whose "benefit" should include zonal cost increases that net out cost decreases.

Both the IEC-East and IEC-West are able to carry more power than a Regional  345kV line, and taken together, move more power than many Regional double-circuit 500kV lines, a configuration that forms the backbone of the electrical grid.

Based upon the amount of capacity in those lines, the IEC clearly qualifies as a Regional project, as Regional was initially intended.

So PJM and Transource have basically stuffed 10 pounds of electricity in a 5-pound bag, in order to call it 5 pounds of electricity and exclude cost increases from its benefit calculation.

I call that cheating.  If I wanted to be nice, I'd say PJM has put its thumb on the scale for Transource's IEC.  Is this really a good idea, from both an engineering standpoint, as well as taking into consideration possible future upgrades and rebuilds?

Then Barron recalculates the benefit cost ratio for IEC as the regional project it truly is:

IF THE IEC WERE CLASSIFIED AS A “REGIONAL” PROJECT, HOW WOULD THE B/C CHANGE?
The benefits of the project would be subject to a 50/50 weighting of overall production cost to load energy payment. The $707M benefit that currently is weighted at 100%, would shrink to $353.5M. The other 50% of the weighting would be based on net production cost changes, a number that includes production cost increases as well as decreases. I have not been able to identify this value in the non-confidential public discovery record, and discovery is still pending. However, we know from OCA filings (SJR-3, p2), that many zones saw significant cost increases, and that the net change in load payment over 15 years was just over $-17M. Net production cost could not have decreased much more than that, or the savings would have been passed on to the customers who saw increased rates. Even assuming a generous $50M savings (which approximates the estimate in the optimistic 2015 14 RTEP presentation) would yield a benefit of only $353.5+(0.5*50)=$378.5M, far less than the $505M cost of the project, yielding a B/C ratio of 0.74.

Barron also proves that he's much smarter than AEP's witness, and the PJM guys as well, when he schools them on probabilistic decision making versus PJM's current "sensitivities" scheme.  It's heady stuff... wade in if you dare ;-)

These guys are probably just lucky that Barron chooses to operate an orchard on land that's been in his family for generations, instead of trying to reform PJM.  PJM and Transource would do well to leave him alone, and if they're lucky, Barron will leave them alone in the future.