E-7: Commissioner Christie’s Concurrence in Exelon’s Application for Abandoned Plant Incentive related to Brandon Shores: E-7, ER24-163

Docket No. ER24-163-000

Today’s order is consistent with the Commission’s existing policies regarding the Abandoned Plant Incentive, as articulated in Order No. 679;[1] thus, I will concur rather than dissent.  This order illustrates, however, why I believe the Commission needs to revisit the array of incentives offered to transmission developers, including the Abandoned Plant Incentive addressed in this order as well as the Construction Work in Progress (CWIP) Incentive and the RTO participation adder.[2]

A core principle of utility law and regulation for decades is that consumers can only be forced to pay costs for assets that are “used and useful” to them.  In Order No. 679, the Commission determined that it may be necessary to depart from this long-standing ratemaking principle to “address the substantial challenges and risks in constructing new transmission.”[3]  In prior statements, I questioned, among other concerns, whether the Commission’s determination of whether “substantial challenges and risks” exist when granting the Abandoned Plant Incentive and other incentives has become nothing more than a check-the-box exercise.[4]

As I noted previously:

The Commission’s incentive policies—particularly the CWIP Incentive, which allows recovery of costs before a project has been put into service—run the risk of making consumers “the bank” for the transmission developer; but, unlike a real bank, which gets to charge interest for the money it loans, under our existing incentives policies the consumer not only effectively “loans” the money through the formula rates mechanism, but also pays the utility a profit, known as Return on Equity, or “ROE,” for the privilege of serving as the utility’s de facto lender.[5] 

Further, just as the CWIP Incentive effectively makes consumers the bank for transmission developers, the Abandoned Plant Incentive effectively makes them the insurer of last resort as well.  This incentive allows transmission developers to recover from consumers the costs of investments in projects that fail to materialize and thus do not benefit consumers.  Just as consumers receive no interest for the money they effectively loan transmission developers through CWIP, they receive no premiums for the insurance they provide through the Abandoned Plant Incentive if the project is never built.  And if the CWIP Incentive is a de facto loan and the Abandoned Plant Incentive is de facto insurance — both provided by consumers — then the RTO participation adder, which increases the transmission owner’s ROE above the market cost of equity capital, is an involuntary gift from consumers.[6]  There is something really wrong with this picture.

As this Commission considers other potential reforms related to regional transmission planning and development, it is imperative that incentives like the CWIP Incentive, Abandoned Plant Incentive, and RTO participation adder are all revisited to ensure that all the costs and risks associated with transmission construction are not unfairly inflicted on consumers while transmission developers and owners stand to gain all the financial reward.  Moreover, if the Commission determines it is appropriate to channel risks to consumers, those risks must be carefully weighed and considered and not simply be mitigated at the expense of consumers in an exercise of “check-the-box.” 

Early in 2021, a majority of this Commission voted to approve a supplemental notice of proposed rulemaking which proposed, among other things, to limit the RTO participation adder to the three years following a transmitting utility’s initial membership

in an RTO.[7]  I joined in that vote and continue to support such a time limit.  That supplemental notice of proposed rulemaking remains pending.  Likewise, the Commission proposed to eliminate the CWIP Incentive in its April 2022 Transmission Planning and Cost Allocation NOPR,[8] which I described as “a major step forward in consumer protection and is a big reason I am voting for [the NOPR].”[9]  It is clear to me that the Commission’s procedures and criteria for awarding the Abandoned Plant Incentive should also be reconsidered.  In short, revisiting all these incentives is imperative at a time of rapidly rising customer power bills.    

I note that in describing the various risks associated with its Brandon Shores RTEP projects for which Exelon seeks an Abandoned Plant Incentive, Exelon appears to mention potential risks from state public policy projects.  For example, Exelon states: 

There are redundancies between elements of the Brandon Shores Project [at issue in this docket] and the [New Jersey Off Shore Wind State Agreement Approach (SAA)] North Delta Project.  This issue, and the related redundancies, have not yet been resolved by PJM, which in turn places the related elements of both projects into a state of uncertainty and developmental risk.[10] 

Whether or not the development of Exelon’s Brandon Shores Project will be impacted by another state’s public policy projects is currently uncertain, but as I said in a previous statement related to the New Jersey SAA public policy wind project, all costs associated with the state public policy projects must be paid for by New Jersey unless another state voluntarily chooses to share those costs and the SAA itself makes that clear.[11] 

With respect to today’s order, I also note that just under six weeks ago I issued a statement concurring in the Commission’s order accepting cost responsibility assignments for the PJM transmission projects related to the deactivation of Brandon Shores.[12]  It is also Brandon Shore’s related transmission projects concerning which Exelon seeks the Abandoned Plant Incentive in this docket.  I recognized in my statement that the projects were “very costly,” and this order further emphasizes that:  Exelon describes in this docket an “approximately $785 million Project [] needed for reliability because of the announced retirement of Talen Energy’s Unit 1 and Unit 2 at the 1,240 MW coal-fired Brandon Shores Generating Station.”[13] 

In my Brandon Shores RTEP Concurrence, I also observed the following regarding these costs and their consideration by the PJM states: 

[I]f 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 [the Organization of PJM States (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.”[14]

I also reminded the states in PJM that PJM is not a regional IRP planner: 

It is ultimately the job of each state to ensure resource adequacy to serve its consumers, even in a multi-state RTO.  So while I am deeply sympathetic to the concerns expressed by the [Maryland Public Service Commission], OPSI and the [Maryland Office of People’s Counsel] as to the impact on consumers, there is really no practical choice for us but to approve this filing.  We simply cannot risk the potentially catastrophic consequences laid out by PJM in its filing.  But the states in OPSI, as well as all states in multi-state RTOs, may want to consider the broader questions this filing raises, as I have described above.[15]

My suggestions in my Brandon Shores RTEP Concurrence are as important today as they were six weeks ago, perhaps even more so as we consider the impact on consumers of an Abandoned Plant Incentive on $785 million dollars’ worth of projects.

For these reasons, I respectfully concur.