FERC Filings
Initial Post Hearing Brief of EPSA re: The New PJM Companies, American Electric Power Co. and Central and South West Co.
AEP's Voluntary Committment To Join PJM Is Designed To Obtain Economical Utilization of Facilities And Resources In The Midwest And Mid-Atlantic Area
Section 205(a) of the Public Utility Regulatory Policies Act of 1978 provides:
The Commission may, on its own motion, and shall, on application of any person or governmental entity, after public notice to the Governor of the affected States and after affording an opportunity for public hearing, exempt electric utilities, in whole or in part, from any provision of State law, or from any State rule or regulation, which prohibits or prevents the voluntary coordination of electric utilities, including any agreement for central dispatch, if the Commission determines that such voluntary coordination is designed to obtain economical utilization of facilities and resources in any area. No such exemption may be granted if the Commission finds that such provision of State law, or rule or regulation–
(1) is required by any authority of Federal law, or
(2) is designed to protect public health, safety, or welfare, or the environment or conserve energy or is designed to mitigate the effects of emergencies resulting from fuel shortages.
Consistent with the statute, AEP and PJM have voluntarily agreed to coordinate their efforts. AEP has voluntarily agreed to join PJM in compliance with its merger conditions and PJM has voluntarily accepted AEP into its markets. The Commission has made a preliminary finding that these actions are designed to obtain “the economical utilization of facilities and resources” in the Midwest and Mid-Atlantic. That finding should be upheld.
Exelon’s testimony on this issue is persuasive. That testimony describes how PJM’s LMP congestion management will result in more economical utilization of facilities than currently would result under AEP’s TLR procedures. For example, the use of LMP will allow more power to move across the transmission grid. Mr. Schnitzer describes the significant costs consumers are incurring from the current inability to import lower cost resources from AEP when higher cost generation is on the margin in PJM. He estimates potential savings of $15-30 million per year. In short, there is ample support in the record for the conclusion “that market-based congestion management in RTOs and in particular LMP as practiced by PJM is expressly designed to obtain a more efficient utilization of the transmission grid and thereby achieve a more economic regional dispatch, compared to what can be accomplished by stand-alone transmission providers.”
The response of Kentucky and Virginia is underwhelming. Three points are worth mentioning. First, the states argue that enforcing AEP’s commitment to join PJM is not voluntary under Section 205(a) since AEP is only volunteering as a condition of its merger. The fact is that AEP voluntarily accepted the condition imposed on its merger to join a Commission-approved RTO. AEP now wants to join PJM in compliance with that condition and PJM and the majority of states and the Midwest and Mid-Atlantic concur with that decision. In the words of the Section 205(a), AEP and other electric utilities in the region would be voluntarily coordinating.
Second, Mr. Spinner, on behalf of the Virginia State Corporation Commission, contends that Virginia can prevent AEP’s participation in PJM’s bid-based LMP markets since Section 205(a) only deals with cost-based pooling arrangements. He states:
It is clear that Congress contemplated the formation of fully coordinated “tight pools and other types of pooling arrangements then known to the industry.” Such pooling arrangements were indeed “designed to obtain economical utilization of facilities and resources” within the meaning of Section 205 of PURPA. The outcome of the implementation of such cost-based pooling arrangements was a much more certain proposition that the proposed bid-based, competitive LMP markets is today.
Apparently, Mr. Spinner believes that Congress intended that the Commission only could consider a single type of voluntary coordination under Section 205(a). To support this view, he provides a lengthy history of the development of the electric grid and Congressional actions in adopting PURPA. However, former Congressman Philip Sharp, who served on the House-Senate conference committee that adopted PURPA , testified that Congress had no such intent. He testified,
[a]s is usually the case when Congress delegates such determinations to administrative agencies, Congress sets out its overall policy goals then allows the agencies to use their expertise to fulfill those goals as circumstances evolve.
Finally, Mr. Spinner contends, again incorrectly, that additional studies are required to satisfy the VSCC that “the benefits of incorporating AEP’s transmission and generation facilities into PJM under a cost-based central dispatch would exceed the costs of achieving the proposed integration.” Under the statute the standard is not whether Virginia is satisfied that “such voluntary coordination is designed to obtain economical utilization of facilities and resources in any area.” Rather the standard is whether the Commission can make that determination; it has done so, and the evidence provides ample support for its determination. Moreover, the statutory standard is not whether an individual state will benefit from the economic utilization of facilities, but rather, as here, the area as a whole will “obtain economical utilization of facilities and resources.”