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LaFleur, states insist Artificial Island requires different cost allocation method

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LaFleur, states insist Artificial Island requires different cost allocation method

Citingthe impacts on ratepayers in Delaware and Maryland, one FERC member and thosetwo states are insisting that FERC should not have allowed to allocatethe costs of certain transmission projects using a methodology they claim ledto an unfair result.

Atissue are two April 22 FERC companion ordersdismissing separate complaints — one (EL15-95, et al.) submitted by Marylandand Delaware regulators, and the other (EL15-67) by Linden VFT — over themethodology PJM was using to allocate the costs of several large transmissionprojects, including the 230-kV Artificial Island transmission project in southernNew Jersey and the Bergen-Linden Corridor Project in northern New Jersey.

Bothcomplaints alleged that the use of that methodology, referred to as asolution-based distribution factor, or DFAX, to the projects at issue meantthat the primary beneficiaries of those projects were assigned little to nocost responsibility, leaving those who received little benefit from theupgrades having to pay far more than their fair share. In particular theyasserted that the projects at issue address reliability violations that are notrelated to flow on the planned projects and therefore it is inappropriate toallocate the projects' costs using a flow-based allocation methodology like theDFAX.

ButFERC dismissed the complaints, noting that it had approved the DFAX model aspart of PJM's Order 1000 compliance filing, a decision that was affirmed by afederal appeals court. The orders also noted that the DFAX method focuses on afacility's benefits over time rather than the reliability issues that promptedthe project, meaning different entities can benefit more at different timesfrom the upgrade. For these and other reasons, FERC said no cost allocationmethod can perfectly assign costs to the beneficiaries of a transmissionproject.

Indissents to the two orders, Commissioner Cheryl LaFleur insisted that while theDFAX methodology usually results in allocating project costs in a mannerroughly commensurate with benefits, it failed to do so in regard to theprojects at issue. The projects are unique, she maintained, because theyaddress short circuit and stability concerns that are readily definable andhistorically limited in number, and address violations unrelated to flowsacross the planned facility.

Theproblem, according to LaFleur, is that the DFAX methodology is a "poor fit"for the projects because it relies solely on the use of the facilities toidentify beneficiaries and allocate costs. Thus, she said it "fails toadequately identify those entities that benefit from resolution of the veryspecific underlying reliability issues that triggered the development andselection of these projects, and therefore fails to allocate those entities acorresponding share of the projects' costs. As a result, entities that use thelines may grossly overpay, while entities that benefit from resolution of theunderlying violation underpay."

LaFleursaid FERC therefore should have granted the complaints and developed anexpanded record to identify an alternative cost allocation methodology thatbetter aligns the benefits and costs of the Bergen-Linden Corridor Project,Artificial Island Project and other similar projects that may arise in thefuture. "It is a cliché to observe that hard cases make bad law, butunfortunately I believe that is the result of today's orders," she said.

Meanwhile,Delaware and Maryland regulators are mulling their next steps now that FERC hasdenied their complaint. They had alleged that the use of the DFAX methodologyfor allocating the costs of the Artificial Island project means that ratepayersin Delaware and the rest of the Delmarva Peninsula, including parts of Marylandand Virginia, will bear roughly 90% of the costs of the nearly $400 millionproject, with most of the costs impacting customers of subsidiary

HeatherContant, a spokeswoman for the Delaware Public Service Commission, said stateofficials were caught off-guard by the FERC decision. Delaware was under theimpression, based upon earlier conversations, that FERC was coming around to "howit's unjust and unreasonable to put this much cost onto Delmarva ratepayers,"she said.

JasonMiller, a spokesman for Delaware Gov. Jack Markell, said in a statement thatthe governor "strongly" disagreed with FERC's finding that chargingDelmarva ratepayers more than 90% of the cost for a project for which they willonly receive 10% of the benefits is just and reasonable. In wake of the ruling,the governor and the Delaware PSC, along with their counterparts in Maryland,will be reviewing the decision and considering their options, Miller said.

However,Contant noted that pursuing further litigation could become "incrediblycostly" if FERC denies the appeal and the state pursues the matter in afederal appeals court. Delaware has until the end of May to make a decision onwhether to appeal, she said.

Delaware Public Advocate David Bonar said in an interview itis only fair that thecosts of a project that overwhelmingly benefits consumers outside the peninsulashould be shared with those ratepayers as well. Otherwise, he warned, Delmarvaresidential customers could see an increase of $3 a month in their electricitybills while industrial customers could see increases of tens of thousands ofdollars a month. "That becomes an economic hindrance when you seecompanies that are already burdened by high electric bills," Bonar said.