FERC Filings
MOTION OF THE ELECTRIC POWER SUPPLY ASSOCIATION FOR LEAVE TO INTERVENE AND PROTEST re: PJM INTERCONNECTION, L.L.C.
COMMENTS
EPSA applauds PJM and its continued progress in becoming an independent RTO. PJM’s continued commitment to achieving competitive wholesale markets and resolving possible seams issues with neighboring markets often makes it the example of RTO best practices. EPSA shares PJM’s vision of regional transmission planning that includes and balances the criteria to accurately assess transmission service requests, studies requests for interconnection of generation and merchant transmission facilities, and still maintains reliability.
That said, EPSA is concerned about PJM’s proposal to revise its regional planning protocol. First, EPSA is concerned about the stakeholder process that led to this tariff filing. It is only through a comprehensive stakeholder process that a detailed proposal on transmission upgrades can be fully and fairly developed, addressing a full range of issues, including unhedgeable congestion. Second, PJM needs to give greater consideration to developing the methodology for determining the true beneficiaries of transmission upgrades. Finally, PJM’s revisions assume that transmission upgrades and expansions are the preferred solution to congestion, without showing a balance for other demand-side or supply-based solutions. These concerns all need to be revisited by PJM in a balanced stakeholder process, revised and resubmitted to the Commission.
A. A more thorough and balanced stakeholder process would give PJM more complete details on which to base its decisions for economic transmission upgrades.
To ensure that RTOs do not overlook competitive market solutions, the Commission has insisted on a regional planning process. In fact, the Commission’s commitment to integrating state and regional authorities into infrastructure and reliability issues is an important element of Standard Market Design (SMD). The effort to develop a broad and meaningful regional planning process to achieve market-based solutions to the problems facing today’s developing markets is an important one, and therefore it is critical that this process be developed in a manner that meets the needs of each RTO and its stakeholders.
An effective regional planning process to determine transmission upgrades needs to be a consensus process that can select the most economically beneficial alternative for consumers. RTO procedures, and the filings that result, need to achieve a balance that considers the needs of all stakeholders. It is only after a thorough stakeholder process that the detail needed to evaluate and decide on transmission congestion solutions can be properly debated and agreed upon.
PJM’s current filing does not reflect a rigorous stakeholder process and hence is bereft of important details. Developing competitive market solutions to determine the best regional transmission solution requires a well-vetted stakeholder process to iron out difficult details. Recognizing that important details are still not included in the PJM filing, EPSA urges the Commission to require PJM to revisit its stakeholder process to develop and provide more detail on its plan for the assessment of transmission upgrades and expansions.
For example, PJM proposes that through monitoring congestion events and assessing their causes, it will determine what congestion is unhedgeable. Theoretically, this process gives the market an opportunity to resolve congestion problems if they can do it in an “appropriate time period.” However, the revised filing does not identify what an “appropriate time period” is. Without knowing the length of time the market has to cure unhedgeable congestion, market participants do not have adequate information to make economic decisions about alleviating that congestion. Therefore, under the process PJM plans to pursue, EPSA is concerned that unhedgeable congestion will only be resolved by transmission upgrades, since other solutions may be precluded by the timing of PJM’s decision making. EPSA is also concerned that artificially suppressed energy prices and the lack of locational ICAP prices may also skew transmission investment decisions. If market participants fail to see accurate price signals, inefficient investment decisions are likely.
Allowing PJM the discretion in this process has the potential to distort decisions regarding infrastructure and how markets will resolve congestion, particularly since it is unclear how PJM will be monitored in this process. The role of PJM’s market monitoring unit in this process is not described in the revised filing and, consequently, PJM’s dominant role in determining the need for transmission upgrades is not balanced by independent market monitor oversight. EPSA’s concern about PJM’s role in the transmission expansion process could be tempered, but not eliminated, by knowing how the process will be monitored, and by whom. PJM’s success is due in large part to the commitment of the members to the stakeholder process and negotiating compromises that work best for the market. This transmission expansion process should not be an exception.
B. Transmission upgrade costs should be allocated on a cost causation basis.
PJM’s discretion and bias toward transmission upgrades as answer to congestion in this process makes the upgrade decision, for which costs will get passed onto consumers without the benefit of a rate-case, a concern for EPSA. The beneficiaries of transmission upgrades under PJM’s allocation method should end up paying for those upgrades. Under current PJM and Commission rules, interconnecting generators have been paying most of the associated upgrade costs when they come on to the system. Changing to a cost causation approach should ensure that those parties that directly benefit from expansions and upgrades be allocated the associated costs. Therefore, costs should not just be “spread” throughout a zone.
There can be benefits to a participant-funded pricing mechanism, as long as those who are the true beneficiaries of a transmission upgrade—load-serving entities, generators, marketers and end-use customers—all contribute to funding the transmission system. However, these benefits will materialize only if a participant-funded expansion is administered by an independent transmission operating entity that determines the true benefactors of network upgrades and other key safeguards. PJM still needs to specify the needed process details to resolve upgrade cost issues in an equitable manner for all stakeholders.
Certainly, whoever directly benefits from transmission upgrades should bear the associated costs. The PJM revised approach proposes that the whole zone will pay upgrade costs, while also suggesting that costs could be allocated on a sub-zonal basis. If costs are spread over the whole zone, why would a sub-zone ever want to enhance the transmission system and pay the full cost? Since a sub-zonal allocation could potentially better identify which market participants are benefiting from a transmission expansion, the Commission should encourage PJM to pursue a full stakeholder process to explore allocating costs on a sub-zonal basis as well as exploration of new pricing policies for transmission expansions.
C. The decision process for unhedgeable congestion needs to include the full range of supply and demand solutions.
A balanced process for making regional planning decisions that addresses congestion facilitates the development of the competitive regional wholesale markets. These markets bring the benefits of lower electricity prices to consumers. To realize these benefits, the PJM transmission planning and expansion assessment needs to provide detail on how transmission, supply and demand-side solutions can be fully included so that the most optimal market-based solution can be reached. PJM needs to establish an evaluation process that looks at the full range of supply and demand options that can resolve congestion, rather than just transmission system upgrades.
In the proposed PJM process, supply and demand solutions are not being considered for solving transmission congestion, once congestion is determined to be unhedgeable. If unhedgable congestion has not been resolved in a time period that is acceptable to PJM, it “will order construction of the transmission upgrades needed to resolve it.” This approach would appear to have on “blinders.” Transmission upgrades are being established as the sole congestion solution at the exclusion of any other market solutions. It appears that PJM is using the unhedgable parameter to only evaluate transmission upgrade decisions to solve congestion, rather than as one to determine the best alternative out the full range of potential supply and demand solutions.
During the SMD technical conference in February, 2002, Michael Kormos of PJM stressed that viable market-based demand-side solutions should definitely be considered as a viable alternative to resolve transmission constraints. Generators have often argued in generation interconnection and siting debates that generation additions can change grid flows and alleviate congestion. Despite these assertions that other alternatives can cure congestion, PJM appears to favor transmission upgrades, at the exclusion of any other alternatives, as the way to resolve congestion problems.