The MMU recommends that PJM reevaluate the rules governing cost benefit analysis and cost allocation for economic projects. (Priority: Medium. New recommendation. Status: Not adopted.)

The MMU recommends the creation of a mechanism to permit a direct comparison, or competition, between transmission and generation alternatives, including which alternative is less costly and who bears the risks associated with each alternative. (Priority: Low. First reported 2013. Status: Not adopted.)

Differences in CLMP among eastern, southern and western control zones in PJM were primarily a result of congestion on the AEP - DOM Interface, the Cloverdale Transformer, the Tanners Creek - Miami Fort Flowgate, the Graceton - Safe Harbor Line, and the 5004/5005 Interface.
The AEP - DOM Interface was the largest contributor to congestion costs in the first nine months of 2018. With $120.4 million in total congestion costs, it accounted for 10.8 percent of the total PJM congestion costs in the first nine months of 2018.

• Transource’s filings in this case do not consider the effects of recent changes in Pennsylvania law that should affect the Commission’s review and analysis of the proposed projects.
• Transource’s East and West Applications each identify only one reasonable alternative route to its selected routes. The route selection process apparently failed to consider other routes that would be likely to result in lower cost and lessened environmental impacts.
• PJM’s so-called “benefit-cost” analysis for non-reliability projects like the IEC Project does not properly evaluate the benefits of a proposed project. The analysis completely ignores increases in costs that would be incurred by zones outside of the region benefiting from a project. That is, the economic analysis used by PJM and Transource completely ignores the fact that the lower-cost power that would flow into certain regions is already being used elsewhere.
• While the IEC Project would reduce costs in portions of PJM, the overall effect on PJM would be that the costs of the IEC Project would greatly exceed the project’s benefits. Indeed, accepting all of Transource’s assumptions shows that every dollar invested in the IEC Project would produce less than three cents of benefits for PJM.
• The effects on Pennsylvania consumers would be even more severe than the impact on PJM. Over a 15-year period, consumers in Central and Eastern Pennsylvania would incur increased power costs of more than $340 million while consumers in Western Pennsylvania would receive lower-cost electricity valued at only $2 million.

If a zone has a positive ΔNLP – that is, its power costs increase over the 15-year study period – the zone is dropped from the calculation. Only zones whose discounted sum of ΔNLP is negative – that is, power costs decreased over the 15-year period – are included in the benefits calculation.

For this example, I will assume a very simplified system with only three zones. The 15-year NPV of ΔNLP shows the following: Zone 1 has a benefit (lower ΔNLP) of $100; Zone 2 has a benefit of $50; and Zone 3 has a detriment (higher ΔNLP) of -$110. Overall the three zones experience net savings of $40 ($100 + $50 - $110). For purposes of PJM’s analysis, however, Zone 3 would be dropped from the calculation and the project would have a “benefit” of $150.

To over-simplify a bit, the IEC Project will lessen the alleged electrical barriers (congestion) and enable lower-cost electricity to reach the higher cost areas of MD-DC-VA. To be clear, MD-DC-VA have plenty of power, so the IEC Project has no reliability benefit; but costs to those areas can be reduced if additional power can be imported cost effectively from lower-cost areas.

Q. Does the so-called benefit-cost methodology required by PJM and used by Transource meet the requirements of a benefit-cost analysis?
A. No. The PJM methodology used by Transource fails to capture all of the benefits and costs associated with the IEC Project.

...the PJM methodology ignores the negative consequences to utilities (and their customers) outside the region to be benefited. That is, when calculating the benefits of the IEC Project, Transource calculated the reduced power costs (primarily in MD-DC-VA) from being able to import lower-cost power into that region; but it failed to subtract from those benefits the higher costs that would result in other regions (including Pennsylvania) because they would no longer have the benefit of that same lower-cost power.

The spreadsheet model includes a calculation of the net benefit or cost for each control area within PJM. Incredibly, though, when it comes time to determine a project’s “benefits” only those regions that would experience reduced  costs are included in the calculation. All regions whose costs would increase as a result of a project are simply ignored.

When PJM first reviewed the IEC Project, it found Project benefits of $1,188 million, as shown on the attachment to OCA II-14 (attached as Schedule SJR-1). This represents the present value of 15 years of savings in Net Load Payments (“NLP”) (that is, energy costs). The Schedule shows, however, that this figure completely ignores the zones where energy costs would increase as a result of the IEC Project.

In the table provided by Transource, a positive number represents an increase in power costs (that is a net cost or detriment from the IEC Project) and a negative number represents lower power costs from the IEC Project (a net benefit). Take the first row as an example. AECO is the Atlantic Electric zone within PJM (the greater Atlantic City, NJ, area). This shows that over the first 15 years with the IEC Project in service, power costs would increase by [$17.90] million for Atlantic City area customers if the IEC Project is completed. Simply, this means that AECO currently is able to use slightly more of the lower-cost power than is economically optimal because of constraints that keep some of that power from flowing into MD-DC-VA.

The net efficiency gains are the only true measure of the IEC Project’s benefit. The approach used by the Company assumes that the lower-cost power that flows into MD-DC-VA would not otherwise confer any economic benefit but for the construction of the IEC Project. In reality, though, that lower-cost power is being used in other regions of PJM (primarily Pennsylvania and New Jersey).  Thus, the benefits from the IEC Project should be measured as the reduction in power costs in MD-DC-VA, offset by the increase in power costs in regions like parts of Pennsylvania where power costs will increase.

Q. If the IEC Project provides net benefits of $17 million over 15 years, should it be constructed?

A. No. As of September 2018, the estimated construction cost is $366 million, resulting in an estimated 15-year cost (PVRR) of $498 million. Thus, the IEC Project would cost significantly more than the benefits it would provide, resulting in a benefit-cost ratio of only 0.03. That is, for every dollar spent on the IEC Project, it would provide only three cents worth of benefits. Because the IEC Project is being built solely to reduce power costs, and not to provide any reliability benefits, the IEC Project is not economical and
should not be built.

The IEC project would cost $498 million over 15 years, but it would lower power costs by only $17 million, resulting in a net loss to PJM utilities of more than $480 million. Thus, PJM as a whole would experience a net loss of $32 million per year for each of the first 15 years of the IEC Project. The Project is not economical for PJM’s utilities (and the consumers who purchase electricity from those utilities) and should not be constructed.

Thus, when including the costs of paying for the IEC Project, the net effect on Pennsylvania would be to have power costs increase by approximately $367 million over the next 15 years, or by more than $24 million per year.

After all, it would not be fair for customers in one area to consistently pay higher prices than others do simply because the system’s design prevented some customers from accessing the lowest-cost electricity.

For many years, some customers in the mid-Atlantic region, those in areas of Maryland, Northern Virginia and the District of Columbia, have had to pay comparatively higher prices than customers in other areas have, because bottlenecks in the interstate transmission system have not allowed an efficient flow of the lowest-cost power into the zone.

PJM recently completed its annual review of the Transource project. Our thorough analysis of the many factors that go into benefits and costs concluded that the benefits continue to justify the costs.

The analysis considered factors such as recent load and congestion forecasts, current cost estimates, power flow projections, topology, interregional modeling, future fuel prices and generation interconnections.

During our recent review, PJM found that the Transource project also will address significant reliability issues that are emerging on the regional transmission system, including the potential overload of a key high-voltage line that carries electricity across the Pennsylvania-Maryland border.

Without the additional transmission capacity provided by the Transource project, the system could face serious violations of federal reliability standards, which would require additional measures to address.

The interstate high-voltage transmission system is a shared resource, and consumers including homeowners, tenants, businesses and industrial plants throughout the PJM footprint benefit from a robust network that provides reliable and affordable electricity across the region.

The incidental‐benefits tail mustn’t be allowed to wag the primary‐benefits dog.

Analysts report that consumers served by utilities on the nation's East and West coasts pay higher costs for their electricity than we do here.

For the aforementioned reasons, I sincerely support and endorse Wind Catcher Energy Connection and the benefits that it will bring to Oklahoma. Oklahoma cannot afford to miss out on this opportunity to invest in our state and the citizens of Oklahoma. I would like to thank the Oklahoma Corporation Commission for their thoughtful consideration on this matter.

But Maine regulators must find that NECEC will benefit Maine residents, even though none of its electricity will be sold in Maine. Additionally, the project’s direct-current design restricts instate generators — such as wind or solar farms — from hooking up to the line.

But opponents, which include national energy companies that own competing power plants, say the project could force their plants offline, costing jobs, tax revenue and the ability to build new wind and solar projects in Maine.

• Maine power plants, including Wyman Station in Yarmouth, could close, and hundreds of jobs and more than $5 million in property tax revenue would be lost.
• Several Maine wind and solar projects could be canceled, too, because the line would be designed like an interstate highway from Canada with no on-ramps in Maine for other generated power.
• Despite being labeled a clean project, the line wouldn’t really lower carbon emissions that accelerate climate change because no new hydropower facilities would be built, meaning fossil-fuel power plants outside New England would be called on to backfill demand in New York state and elsewhere created by the diversion of power to Massachusetts.

Asked Tuesday to clarify the $40 million savings to Maine ratepayers, John Carroll, an Avangrid spokesman, said an analysis done for the company attempts to quantify the “downward pressure” on energy prices in the wholesale markets. The effect, he said, is similar to using less of a higher-cost fuel to meet electric demand; it produces lower prices for consumers.
In the testimony, opponents acknowledge that the project could “suppress” wholesale electric rates at first. But Tanya Bodell, executive director at Energyzt Advisors LLC in Boston, said that falling prices associated with other planned renewable generation projects would soon negate the impact of the new transmission line.

Little is known about the opponents. A  consultant for Renewable Arkansas, a nonprofit offshoot of a group called  Americans for Affordable Energy, has placed an op-ed article recently opposing the SWEPCO project. The author, Grant Tennille, former director of the Arkansas Economic Development Commission, questioned the reliability of the savings estimate and also said it would provide an advantage to SWEPCO in continuing to sell excess electricity from existing coal-fired plants in Arkansas into the open market. Bringing in wind lowers the company's overall cost of power and makes the sales more profitable, he wrote. He has not responded to my email asking about his employer on the issue. He suggests, by the way, that SWEPCO should invest in solar power in Arkansas.

“A group known only as Protect Our Pocketbooks – which does not reveal the names of its backers or the sources of its substantial funding – is presenting misleading information to the public, including manipulation of statements by Arkansas Gov. Asa Hutchinson,” said Brian Bond, SWEPCO Vice President of External Affairs.

Gov. Hutchinson wrote to the Arkansas Public Service Commission on Jan. 11 asking that the benefits of federal corporate tax cuts be passed on by utilities to Arkansas families and businesses. “In its latest television ad, Protect Our Pocketbooks misleadingly associates the governor’s comments about corporate federal tax cuts with the group’s campaign against Wind Catcher,” Bond said.

“The anonymous, tax-exempt opposition group claims that Arkansas gets none of the benefits of the project, which is incorrect and misleading. Arkansas will receive the benefits of generation with no fuel costs, cost savings immediately and over the life of the project, the full value of the federal Production Tax Credits available to the project, and the economic development benefits of wind turbine components being manufactured in Arkansas,” Bond said.