Valley Link Transmission Files for Incentives and Formula Rate at FERC

On Friday, Valley Link Transmission filed at the Federal Energy Regulatory Commission (FERC) for approval of a formula rate to collect their costs from ratepayers, along with a request to set a Return on Equity (ROE) and additional financial incentives.  They're wasting no time trying to ram their transmission projects through and make a ton of money doing it.

Applying for CPCN/CCNs from the Maryland, Virginia, and West Virginia state commissions is a threshold step for Valley Link during the pre-construction phase, because obtaining CPCN/CCNs will improve Valley Link’s ability to secure the needed land rights to support the Project Portfolio. Because the PJM Board only recently approved the Valley Link Portfolio Project on February 26, 2025, Valley Link has not yet initiated the CPCN/CCN process. Valley Link faces significant time pressure to initiate the CPCN/CCN process within the next few months because CPCN/CCN proceedings in these states can be lengthy.

That's right, Valley Link wants to file its state permitting applications within the next few months, even though we've been waiting 18 months for FirstEnergy to take any interest whatsoever in building their section of the 500kV MARL project in Jefferson County.  They're in an awful hurry on Valley Link and landowners and communities are going to be mowed down if they can't keep up.

"Valley Link is committed to collaborating with residents, local governments and other stakeholders in the project communities at every stage of the process."

Well, except this stage.  Valley Link doesn't want you to "collaborate" on their request for FERC incentives or in their rate process.  All the more reason to do it!

Your first task?  Valley Link's 1500 page rate/incentive filing.  Go ahead, take a look.  I hope you understand FERCish.  You don't?  Fortunately, I do so here's a summary of the important points included in this filing.  You are encouraged to intervene and/or file a comment on this proceeding.  Deadline to do so is April 4.

Valley Link is a 765kV transmission project proposed to connect the John Amos coal-fired power station in Putnam County, WV to Loudoun County's "data center alley."  It will cross 14 counties in West Virginia on its way, including Jefferson.  It will require a new 200-foot wide right-of-way for its entire length.  In Jefferson County it is proposed to expand the existing transmission line corridor through the southern part of the county and add a third transmission line to the existing configuration that is surrounded by hundreds of existing homes, schools, businesses, parks, historic resources and even our national parks!

Valley Link's filing asks FERC to grant financial incentives to the project and set up the rate it will use to collect its costs from captive electric customers across the PJM region.  

First, let's examine the incentives Valley Link has requested.  In order to qualify for incentives, the transmission line must be the product of a fair and open transmission planning process.  Competition is an important and required part of this process so that consumer costs may be reduced through competitive cost concessions.  Except there were no such concessions for Valley Link.  They not only bid their projects in at full price, they also did not include any cost caps.  Consumers will pay whatever it costs to build these projects, even though the initial "competitive" bid may have been much lower.  The sky's the limit!  The idea of competitive transmission is that it allows incumbents and non-incumbents to compete on a level playing field to construct the most cost-effective project.  Incumbents hate it because they'd rather not compete at all, and instead be awarded all new transmission in their territory at whatever price they want to charge.  For years after FERC's Order 1000 required competitive transmission windows, incumbents simply declined to participate in region-wide competitive planning, preferring instead to concentrate on smaller projects in their own territory.  PJM's 2022 Window 3 competitive planning process actually allowed several non-incumbent companies to offer cost caps and financial concessions that actually saved ratepayers money, and those projects were selected, much to the chagrin of the incumbents.  But they weren't about to be fooled again, so they created an incumbent cartel and agreed not to compete with each other so that none of them had to make any financial concessions.  If they didn't compete with each other, they could create ostensibly "joint" projects that shut out all competitors and took control of PJM's Planning Process.  And that's how we got Valley Link's $3B project portfolio, with no limit on how much these projects might eventually cost.  Who does that?  PJM ought to be ashamed of itself!  Valley Link Transmission was not the result of a fair, open and competitive planning process.

Financial incentives for transmission must be rationally tailored to a project's risks and challenges.  "Rational" has long ago left the incentives building... it's nothing but a free buffet where utilities gorge themselves on ratepayer cash.  That's right, ratepayers fund all these financial "extras" that encourage transmission developers to build "much needed" projects.  Except if you attended any of the PJM meetings, you know that these developers are beating each other down to get awarded these projects.  And that's precisely because they want to gorge on the unnecessary incentives.  Even if FERC stopped offering these incentives tomorrow, these companies would *still* be falling all over themselves to build new projects.  Incentives are a give away that is not needed to encourage new transmission.

These are the individual incentives Valley Link has requested, with a brief explanation of each:

• Recovery of 100% of prudently incurred costs in the event that all or part of the Project Portfolio must be abandoned for reasons outside the control of Valley Link (“Abandoned Plant Incentive”)

This means that Valley Link is guaranteed to be able to collect ALL its prudent project costs from ratepayers if the project is cancelled.  Essentially, ratepayers are providing insurance for the project's success.  If it fails, then the utilities can't lose.  Only ratepayers can lose.  In the case of the failed Potomac-Appalachian Transmission Highline (PATH) project, ratepayers ended up spending more than $250M on a cancelled project that never put a shovel to the ground.  This is outrageous!  Utilities must have some skin in the game and accept some of the risk that they are being rewarded for through incentives.​

• Inclusion of 100% of construction work in progress (“CWIP”) in rate base during the development and construction of the Project Portfolio (“CWIP Incentive”)

This means that Valley Link will be able to collect a return (interest) on the amount of money it has spent to construct the project while it is building the project.  It begins collecting money from ratepayers as soon as FERC approves the incentive, although the project may not actually be built and serving ratepayers for many years.  It makes ratepayers responsible for paying for projects that are not being used, and haven't even been finished yet.  Ratepayers are being used as the utility's "bank" to pay the companies while they are building.

• Recovery of pre-commercial costs through establishment of a regulatory asset that will include all expenses, including expenses incurred prior to the filing of this application, that are incurred prior to the time costs first flow through to Valley Link customers under the PJM Tariff, including authorization to accrue monthly carrying charges (“Pre-Commercial Incentive”)

This means that Valley Link can put all its costs from its first idea to make a "joint project" through the time its formula rate is approved into a regulatory asset and collect them from customers in the future.  It's a way to retroactively open the money spigots so that ratepayers pay Valley Link's costs to compete at PJM as well as their costs to create their fake shell company, and ask for incentives and a formula rate.  It makes sure that the utility never has to spend a dime of its own money on this project.

• Inclusion of a 50 basis point return on equity (“ROE”) adder for Valley Link’s participation as a new member in a Regional Transmission Organization (“RTO”) (“RTO Participation Adder”).

This means that Valley Link's Return on Equity (ROE) will be raised one half of one percent because its "joint venture" will be a separate new member of PJM.  Keep in mind that each one of these three joint venture companies (FirstEnergy, Dominion, and Transource) is an existing member of PJM and collecting their own RTO Participation Adder.  But because they formed a new fake shell company, they can pretend to be "new" and collect again.  This is also outrageous.  It's not a new entity, and it would only encourage utilities to keep creating new shell companies in order to receive financial reward.

Valley Link says it needs incentives to reduce "risk" for its project.  What risk is that?  Valley Link speaks out of both sides of its mouth.  First they say this: "Valley Link Transmission’s joint venture structure allows the Participants to combine their diverse experience and knowledge to successfully develop projects of significant size and scope, while sharing the risks of such projects. The geographic and financial scale of new competitive transmission projects sought by PJM in the RTEP process in recent years lends itself to this structure to adequately manage the risks associated with infrastructure projects of this scale."  Somehow the joint non-competitive project was able to "manage risk" but yet on the other hand, the project is just so risky that it needs a bunch of financial incentives.  "​Valley Link will
face significant permitting, siting, construction, procurement, and financial risks that present challenges to developing and constructing the Project Portfolio."  So, which is it?  Is Valley Link risky or not?  It can't be both!

Of course, Valley Link plans to lower its risk that you're going to go all torches and pitchforks on them by "collaborating" with you.  Of course, that "collaborating" doesn't mean they will make any adjustments to their plan or anything like that... they just want to pretend they're considering your ideas while they laugh at you behind your back.

Valley Link is committed to collaborating with residents, local governments and other stakeholders in the project communities at every stage of the process. Community engagement is crucial for making informed decisions that reduce or prevent potential impacts while delivering for the public essential infrastructure necessary to address large-scale reliability needs that the PJM grid faces both in the short term and for years to come.

Valley Link also requests three identical new formula rates, one for each of its state-specific sub-companies (it's like Russian nesting dolls).  A formula rate is a set of calculations that devise a yearly revenue requirement for each company.  It includes O&M, A&G, taxes, and return (interest) on capital expenses that are paid for over the project's useful life (approximately 40 years) as these assets slowly depreciate because we pay for them.  I've long since given up trying to explain formula rates to people who don't understand them, but let's just say it's extremely complicated.  If you don't believe me, take a look at the proposed formula rates in the filing.  I will sum it up by sharing that we pay for transmission much the same way we pay for a home using a 30 year mortgage.  While the bank loans us the cash to purchase the home, we will pay much more than we ever borrowed over that 30 years because the interest is calculated monthly.  We slowly pay the bank back, and they earn a huge profit over 30 years.  It works the same way with transmission, except the utility is "the bank" and the transmission line is our house that we have to pay for over 40 years, with interest calculated every year on the remaining unpaid balance.

And speaking of interest... Valley Link has requested a base ROE of 10.9%.  But they're not stopping there... they are also requesting .5% for their new membership in PJM (see above).  Total Return on Equity for this project is proposed at 11.4%.  That means Valley Link would earn 11.4% on the unpaid project balance every year for 40 years.  Do you earn 11.4% on your investments?  Probably not.  Transmission ROEs are already incredibly generous.

The important thing to think about with the formula rate is transparency so that we can check the utility's math from time to time to make sure they are doing it correctly.  Valley Link's formula rate is not transparent and leaves certain terms undefined.  That's probably because of this.  However, lack of transparency is not just and reasonable and FERC cannot approve a formula rate that is not just and reasonable.

And I think I'll stop there.  If you have any additional questions after reading the filing, I'd be happy to help.

So, let's sum it up:

FERC should not grant transmission incentives to Valley Link because Valley Link was not part of a transparent and competitive transmission planning process.

FERC should not grant the costly transmission abandonment incentive to Valley Link because the project has not been found needed by any state where the public may actually participate in the decision making.

FERC should not grant the CWIP in Ratebase incentive because that starts the money flowing out of ratepayer pockets before any state has approved it.

FERC should not grant the RTO Participation incentive to Valley Link because it is a shell company managed by incumbent utilities that have already been granted this incentive.   The "joint venture" is a charade.

FERC must ensure that Valley Link's formula rate is transparent and allows any person to participate in annual updates, seek information, and file challenges.

And keep this in mind when you file your comments at FERC. (File on Docket No. ER25-1633).  FERC Chairman Mark Christie had this to say about the cancelled PATH project just over a year ago.  (Begin at minute 13:48 and watch for about 5 minutes until he's finished).  Attention must be paid!  Valley Link is a second attempt to build the PATH project, but it also presents FERC with a second chance to correct all the things Christie said they got wrong with the original project.