Docket No. ER24-843-000
Since the SAT is coming back,[1] here is a multiple-choice question:
Which of the following is a “public policy” transmission project under PJM’s tariff:
a) A reliability line caused by load growth that may be attributed to economic development resulting from state tax policies applicable to all taxpayers, such as relatively lower individual and corporate tax rates.
b) A reliability line caused by load growth attributable to the rapid development of a very specific industry that uses huge amounts of power and is receiving very specific and very generous state tax subsidies not available to other businesses.
c) A reliability line caused by a state’s policy of mandating the closure of fossil-fueled power generation stations.
d) A supplemental line built at the request of a state to meet its offshore wind generation policy goals.
e) All of the above.
If you answered “d” you would be correct (the SAT “best” answer), as this is the classic PJM State Agreement Approach (SAA) model currently being used for New Jersey’s offshore wind projects. And New Jersey is appropriately bearing the full costs of these projects, which are not planned as reliability projects.
In this case, however, the Maryland Office of People’s Counsel (Maryland People’s Counsel)[2] and other intervenors[3] argue that options other than “d” should also be considered a public policy project or otherwise be cost allocated as a public policy project. In my view, they make an argument that deserves serious consideration in the future, as stated below, even if it does not change the outcome of this case given the legal standard here.[4] As a factual matter, there is no question that the Commonwealth of Virginia has – as a matter of public policy – for years given generous tax subsidies directly to one very specific type of industry: data centers.[5] Virginia’s entire I-95 corridor between Northern Virginia and Richmond may accurately be called “Data Center Alley.” Did these tax subsidies cause Data Center Alley? Under the economic principle of “if you want more of something, subsidize it,”[6] it is logical to assume that Virginia’s tax subsidies did incent the construction of more data centers than would otherwise have located in this corridor, although the exact marginal impact remains unknowable.[7] But the Maryland People’s Counsel and Intervenor Newman make a logical argument to consider the necessary construction of reliability lines in PJM due to load growth from the explosion of data center development in Virginia, as driven – at least at the margin – by Virginia’s own public policy of subsidizing data centers.
A similarly logical and serious argument, however, could also be made for option “c” in the mock SAT question above. Indeed, Staff of the Virginia State Corporation Commission (Staff of the Virginia Commission) argue that Maryland refrained from mentioning public policy considerations when PJM allocated costs associated with the reliability upgrades required by the closure of the Brandon Shores power generation unit,[8] and the Office of the Virginia Attorney General, Division of Consumer Counsel (Virginia Consumer Counsel) argues that a paradigmatic example of a public policy project include federal and state incentives for new renewable generation units and generating plant deactivations, due to their connection to electric infrastructure.[9] These comments logically raise the question whether a law such as Maryland’s mandate to close fossil-fueled generation units located in Maryland has a more direct, intentional and causal impact on the need for new reliability transmission lines than state tax subsidies to high-load customers such as data centers. At a minimum, both Maryland and Virginia state commenters make arguments that are worthy of serious consideration.
Under PJM’s current tariff, however, only supplemental projects requested by a state, such as New Jersey’s offshore wind-driven projects, are considered to be public policy projects. Since PJM’s RTEP filing under consideration herein is consistent with its current tariff, under section 205 of the Federal Power Act (FPA), we must approve it, and for that reason I concur.
I will reiterate what I said, however, in a recent PJM RTEP filing that included the need to update RTEP projects due to the noticed closure of the Brandon Shores coal generating station near Baltimore:
Let me emphasize that the State of Maryland, within its sovereign police powers, clearly has the authority to mandate any particular mix of generating resources it prefers. Maryland’s new climate law is well within its inherent authority to enact. Such policies are for Marylanders to choose, not RTOs or FERC. But if the resulting transmission projects under protest in this RTEP filing are caused more by Maryland’s policy choices than by organic load growth and economic resource retirements, then a salient question that may be asked is whether these transmission projects are more accurately categorized as public policy projects, essentially the same as the transmission upgrades caused by New Jersey’s offshore wind projects?
And if they are more accurately categorized as public policy projects, should such projects be regionally cost-allocated, potentially to consumers in Pennsylvania, West Virginia, Ohio, et al.? For example, the State of Illinois has a law similar to Maryland’s that PJM has already estimated will cause $2 billion in transmission upgrades, costs that will be allocated to consumers in other states under PJM’s existing cost-allocation formula. These are questions that the states within OPSI may wish to start considering, as some already have. As the National Association of Regulatory Utility Commissioners (NARUC) noted in comments filed at FERC: “. . . the PJM states are not voting members of PJM, but the majority have reached an equally valid agreement that the burden for costs driven by public policy requirements of one state should not be placed on customers of load serving entities in non-participating states.”[10]
While this matter (and the November 2023 RTEP Order) both arise in PJM, the issue of the proper regional cost allocation for public policy-driven transmission projects is not confined to PJM, but is applicable across all of the nation’s multi-state RTOs.[11] Since RTOs are regulated by this Commission, I believe that the time has come for this Commission to take the lead in its convening role to initiate a proceeding, such as a Notice of Inquiry, a series of technical conferences, or by initiating an FPA section 206 proceeding outside this docket, posing such important questions, among others, as: What is the proper definition of a public policy transmission project? Does the definition of public policy transmission project need to be changed for purposes of regional cost allocation? How should public policy transmission projects be cost-allocated in a multi-state RTO? In my view the states themselves need to be at the forefront of deciding these questions, as it is their own state policies that are largely making these questions unavoidable, as these two recent PJM RTEP cases graphically illustrate.[12]
For these reasons, I respectfully concur.
[1] Hannah Natanson & Susan Svrluga, The SAT is Coming Back at Some Colleges. It’s Stressing Everyone Out, Wash. Post, Mar. 18, 2024, https://www.washingtonpost.com/education/2024/03/18/sat-test-policies-confuse-students/.
[2] See, e.g., Maryland People’s Counsel Feb. 2, 2024 Protest and Comments (Maryland People’s Counsel Protest) at 9 (“While Virginia’s state policy incentivizes locating data centers within the Commonwealth, the tight correlation between data center development and electric consumption means that it is essentially also a state policy to promote massive electric infrastructure development to supply data center needs.”), id. at 8-14; Maryland People’s Counsel Mar. 20, 2024 Answer at 4-5 (“The Commission’s approval here would, in effect, allow a state with [Public Policy Requirements and Public Policy Objectives (PPROs)] that are driving massive demand and transmission investments to do an end-run around the allocation of transmission costs for facilities to meet the ‘need’ fueled by that State’s PPROs, avoiding costs by simply not identifying the PPROs in the RTEP process and not participating in the SAA.”), id. at 3-9, 15.
[3] See, e.g., Keryn Newman Feb. 9, 2024 Comments at 3-6 (“This newest cost allocation for $6B worth of new transmission projects that were caused solely by the policy choices of Maryland and Virginia should therefore be allocated to only those states as public policy projects. . . . Virginia’s choice to approve new data centers, even though they have no idea where the electricity to power them is coming from, is also outside the control of consumers in surrounding states. Under PJM’s current tariff, consumers in other states would pay for the new transmission to support the planning decisions of just one or two counties in Virginia. While the data centers would benefit their home counties with increased tax revenue, economic development, and jobs, they will not provide the same benefits to the millions of struggling consumers in the rest of the PJM Region who would subsidize their electric service with new transmission lines. New data center load is just as much a policy choice made by local/state governments as clean energy policy and should also be allocated to the states responsible the same as public policy projects.”); id. at 8 (footnote omitted) (“PJM’s biggest transmission building endeavor ever results from the energy policy and economic choices of governments in only a very small portion of PJM. The costs of their choices should not be visited on everyone else in the region so that these states/localities can continue to escape the consequences of their irresponsible energy choices. The time for the Commission to step in to protect consumers is now, before the next set of data center transmission lines is planned and approved. Northern Virginia’s status as the data center capital of the world demands a different, just and reasonable, cost allocation method be developed.”); see also Pennsylvania Office of Consumer Advocate Feb. 26, 2024 Answer at 4-5 (footnotes omitted) (“First, if [Maryland People’s Counsel] is correct that the substantial load growth created by data centers in Virginia and the corresponding substantial transmission investments needed to address this situation is in fact being caused by public policy decisions in Virginia, that is a troubling outcome for Pennsylvania ratepayers. Pennsylvania ratepayers obviously have no voice in the local political decisions being made in Virginia as to the hosting of data centers in that state or as to whether Virginia should seek to build suitable generation to accommodate this substantial load growth. And yet, Pennsylvania electric utilities and ultimately Pennsylvania ratepayers will bear the costs of these transmission projects under the current PJM allocations.”).
[4] Order at P 28.
[5] To the extent that Dominion, the load-serving utility in this part of Virginia, socializes the relatively large cost of network upgrades needed to serve individual data centers across all Dominion customers, that could be considered by some to be another subsidy, given the extraordinarily large amount of power consumed by a data center relative to those other customers (which also drives costs for new power resources). But these issues are policy questions for Virginia policy-makers, as these costs are not allocated regionally but are confined to Virginia.
[6] See, e.g., the Inflation Reduction Act of 2022, Pub. L. No. 117-169. The corollary is “if you want less of something, tax it,” which is an argument for a carbon tax if you are serious about reducing carbon emissions.
[7] For example, Maryland People’s Counsel’s expert states in his Affidavit: “According to an audit of state spending in 2021, Virginia incurred $837 million in Data Center Exemptions from 2011 to 2020. Going forward, Virginia projects approximately $3.6 billion in additional tax subsidies have and will be extended via the exemption for fiscal years 2022-2025. This has had a substantial impact on the local economy, as detailed in another 2021 report by the Northern Virginia Technology Council. Northern Virginia has the largest data center market in the United States, exceeding the next five largest markets combined.” Maryland People’s Counsel Protest Feb. 9, 2024 Affidavit of Ron Nelson at 20:14-21:3 (footnotes omitted).
[8] Virginia Commission Staff Feb. 21, 2024 Answer at 2-3 (footnotes omitted) (“Notably, Maryland [People’s Counsel] refrained from raising a ‘public policy’ argument to allocation of costs of projects within Maryland resulting from the Brandon Shores retirement, but argued instead that such costs should be paid in part by ratepayers outside Maryland because PJM should have foreseen the Brandon Shores retirement. Maryland [People’s Counsel] does not explain how that would have occurred if not for PJM taking notice of Maryland public policies incenting the retirement of fossil generation.”).
[9] Virginia Consumer Counsel Mar. 7, 2024 Answer at 3-4 (footnotes omitted) (“The distinction between PPROs and Virginia’s data center tax incentives is the degree of their connection to electric infrastructure. Maryland [People’s Counsel] itself defines PPROs to ‘include state level policies that are closely associated with promoting or regulating electric production or usage.’ Paradigmatic examples of PPROs are federal and state incentives for new renewable generation units, generating plant deactivations, and demand response and energy efficiency programs. These are policies which directly affect load by design. . . . Under Maryland [People’s Counsel’s] reasoning, manufacturing incentives would constitute PPROs, requiring ratepayers to entirely fund transmission projects designed to serve the increased load that new manufacturers in their state would require.”) (emphases in original).
[10] PJM Interconnection, L.L.C., 185 FERC ¶ 61,107 (2023) (November 2023 RTEP Order) (Christie, Comm’r, concurring at PP 7-8 (emphasis in original)) (available at https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-pjm-transmission-projects-cost-allocation-er23).
[11] The issue does not arise in single-state RTOs such as CAISO and NYISO, as long as the costs of transmission projects caused by, or implementing, any of their state public policies are confined to those states.
[12] I note too that in PJM’s RTEP review it offers a good example of how components of two different types of projects, a specific reliability solution and SAA Project, can be combined into one project that meets both needs. PJM describes in its filing how it solved a Window 3 specific reliability problem by combining that solution with an SAA project into an Incremental Multi-Driver Project. See Order at P 8 & n.22. This is a good example of how a multi-driver project should work: The reliability need is specific and would require a specific reliability solution that would, on its own, merit inclusion in the RTEP as a reliability project, and the SAA project, which is a supplemental – not a reliability – project, if feasible as it is in this specific case, can be planned in a way to meet the specific reliability need. Costs are allocated by PJM proportionately to each component of the project, one percentage allocated as a reliability project under PJM’s formula, the other percentage wholly allocated to New Jersey for the SAA project. I note a concern that if there are future cost overruns, they should be ascribed wholly to the portion of the project where the cost overruns occur.