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PJM shares 2 methods for allocating costs of Artificial Island project

PJM Interconnection shared two alternative approaches to allocate the costs of a $280 million transmission project in an area known as Artificial Island in southern New Jersey.

The two approaches provide alternatives for how to divide the costs of a new 230-kV line, which PJM's board approved in April, that would run from a new substation in New Castle, Del., to a substation at the Hope Creek nuclear plant in Salem, N.J. LS Power Group has been selected to build the line.

An existing cost allocation method that was approved by the Federal Energy Regulatory Commission placed about 93% of the costs on Delaware and Maryland ratepayers in the Delmarva Power & Light Co. zone. But two new methods would spread the costs across other zones in PJM, which manages power supply across 13 states and the District of Columbia. The Delmarva zone would bear roughly 7% of the cost under the second proposed method called a "Stability Interface DFAX method," and about 10% of the costs under a third method called the "Stability Deviation Method," according to a PJM paper, "Alternative Approaches to Identification of Artificial Island Beneficiaries."

Under the two new methods, other zones would bear larger shares of the costs. For example, Public Service Enterprise Group Inc. subsidiary Public Service Electric and Gas Co.'s service territory in New Jersey could bear 42% of the costs under the Stability Interface approach and 19% under the Stability Deviation Method. In the existing method, the utility, which owns the Hope Creek plant, bore only 0.42% of the costs. Similarly, Exelon Corp. subsidiary PECO Energy Co., which powers the Philadelphia area, and FirstEnergy Corp. subsidiary Jersey Central Power & Light Co. each bore less than one percent of the costs under the existing method, but would see their shares rise substantially under the new methods.

PJM Vice President of Planning Steven Herling said June 9 during a special meeting of the PJM Transmission Expansion Advisory Committee the paper and accompanying presentation help "facilitate a conversation. PJM is not advocating for any of these three approaches we have presented here. We recognize that there are any number of other approaches." In the paper, PJM says it does not have authority to "devise or file allocation methodologies," as federal law leaves that responsibility to transmission owners.

Earlier this year, PJM's board directed the grid operator to provide information to help states and transmission owners should they choose to seek FERC approval of an alternative approach, the paper said. The work since then also address concerns raised by governors, legislators, consumer advocates and businesses in Maryland and Delaware about the existing method unfairly placing costs on ratepayers in their states.

"As we have both stated previously, Delmarva Peninsula residents should not be overburdened with the costs of this project, since the majority of the benefits will go to New Jersey," Maryland Gov. Larry Hogan and Delaware Gov. John Carney told PJM's board in a joint letter in March.

The existing method, also called a solution-based distribution factor, or DFAX, method, complies with principles from FERC's Order 1000, which says costs of new or upgraded transmission projects should be allocated to those who benefit from the project. The DFAX method, also known as a "beneficiary pays" method, has worked "fairly and reasonably" for certain transmission projects addressing reliability issues but has not produced the same results for a unique project like Artificial Island that addresses stability.

Herling stressed how projects like Artificial Island address the aggregate stability of the system. "Stability is a function of a number of things. It is a function of how many megawatts you are trying to push out of the plant to the system," Herling said.

The Stability Interface DFAX method allocates costs based on a select group of transmission lines that envelop and form an interface around the generators with the stability issues, according to the paper. The interface assumed in the paper included lines in the immediate area including 500-kV lines into Hope Creek and Salem and the new 230-kV line. Herling said one advantage of this method is that it is consistent with the existing method and easier for transmission owners to replicate.

The third approach, the Stability Deviation Method, most closely addresses the "stability phenomenon," but is labor- and time-intensive for PJM, Herling said. The method, in essence, models how each transmission zone is reacting to a disturbance and aggregates those responses to figure out who benefits.

In an April 6 letter to stakeholders, PJM President and CEO Andy Ott said the grid operator would notify FERC of its work on these two methods.