Docket No. ER24-843-000
I support today’s order and agree with the basis on which the Commission finds that PJM has acted in accordance with the cost allocation provisions of Schedule 12 of its tariff. I write separately to observe that this case demonstrates well the peril of seeking to allocate transmission infrastructure costs in a multi-state RTO in a myopic manner.
The facts before us are this: PJM has identified nearly $5.1 billion of transmission upgrades needed to address reliability problems that would otherwise materialize based on projected changes to supply and demand in the future. PJM identifies several contributing factors, one of which is demand growth in northern Virginia driven by new data centers. Pursuant to the cost allocation method in PJM’s tariff, which assigns costs roughly based on contribution to the reliability violations identified, approximately half of this total cost will be borne by customers in northern Virginia, the site of the data centers, and approximately 10% by customers in Maryland. Maryland Office of People’s Counsel (Maryland People’s Counsel) objects, arguing that Virginia customers should bear all, or nearly all, of the costs because the data centers are the result of Virginia state policy to incentivize their locating in Virginia.
Maryland People’s Counsel therefore asks us to reduce Maryland customers’ cost responsibility for a set of new transmission projects because another state’s public policy contributed to the need for that transmission. But seeking to isolate any infrastructure affected by state public policy and require the state enacting such policy to shoulder the infrastructure’s costs absent voluntary agreement to do so, as Maryland People’s Counsel appears to suggest,[1] ignores the regional nature of PJM’s transmission system and the full distribution of benefits of regional infrastructure. Adopting Maryland People’s Counsel’s suggested outcome would be impractical and unworkable. “It is a fact of economic life that the wholesale and retail markets in electricity, as in every other known product, are not hermetically sealed from each other.”[2] Given this overlap between state and federal regulation, Maryland People’s Counsel’s approach would require disentangling the effects of countless public policies on the need for new transmission, raising difficult line drawing exercises whenever, inevitably, multiple policies have affected the need for the relevant infrastructure.
Further, making necessary transmission upgrades contingent on a state’s voluntary assumption of costs could imperil reliability, given that PJM has determined that the transmission projects at issue are needed for grid reliability. It would also allow a state, such as Maryland in this instance, to free ride, receiving reliability benefits of new infrastructure without paying for them. That is simply not how planning and allocating costs for an integrated regional transmission system can or should work. While states should of course have the opportunity to fund infrastructure that meets their specific needs, infrastructure that is integral to reliable, affordable system operation does not and cannot depend on an opt-in structure requiring the affirmative consent of all affected parties to the precise costs that they are allocated.
As the order explains, Maryland People’s Counsel’s argument fails because PJM has followed its tariff in arriving at its proposed cost allocation. However, Maryland People’s Counsel’s argument also overlooks the reality that myriad state and local (and, for that matter, federal) public policies affect either the demand for or supply of electric power. Virginia is certainly not the only state with economic development policies that are increasing the demand for power. Likewise, every state makes policy and/or regulatory decisions that affect which generating facilities provide supply to meet demand. Assigning transmission costs by attempting to parse countless public policies to determine whether and how each contributes to the need for transmission by affecting demand or supply in the power system is an impractical task that is not required by the Federal Power Act.[3]
It is far more sensible, and legally defensible, to plan transmission based on known and foreseeable conditions and then assign costs based on the allocation of reliability and economic (and perhaps other demonstrable) benefits. Doing so reflects the regional nature of PJM’s system and comports with the Commission’s obligation to ensure that the costs of transmission are allocated in a manner at least roughly commensurate with the benefits derived from that transmission.[4]
For these reasons, I respectfully concur.
[1] It is not clear exactly what cost allocation Maryland People’s Counsel seeks, as it appears to request allocation pursuant to a methodology that does not exist in PJM’s tariff. Maryland People’s Counsel asserts PJM should have treated the transmission projects at issue as Multi-Driver Projects under the provisions of section 1.5 of Operating Agreement Schedule 6. Maryland People’s Counsel Protest at 10. However, as today’s order explains, section 1.5.10(b) “makes clear that to qualify as a Multi-Driver Project with a state Public Policy Requirement component, the enhancement or expansion that addresses that state Public Policy Requirement component must already meet the requirements to be a[] [State Agreement Approach] Project,” which includes that the state with the public policy voluntarily assume the costs associated with meeting that policy. It is therefore not clear how Maryland People’s Counsel envisions allocating these costs where Virginia has not advanced a public policy need through the State Agreement Approach process.
[2] EPSA v. FERC, 577 U.S. 260, 281 (2016).
[3] I wrote recently about this same general point in the context of PJM’s markets, rather than its transmission planning process. In that case I explained that state and local policies of all stripes naturally affect the supply of resources participating in PJM’s capacity market, thereby influencing the costs and benefits that others receive by participating in that market. On an integrated transmission system, regional investments—whether generating resources or transmission upgrades—provide broad benefits to customers across the region. The just and reasonable standard is met where costs are assigned consistently with those benefits. PJM Interconnection, L.L.C., 186 FERC ¶ 61,080 (2024) (Clements, Comm’r, concurring in part and dissenting in part).
[4] See Coalition of MISO Transmission Customers v. FERC, 45 F.4th 1004, 1009 (D.C. Cir. 2022).