The Pennsylvania Public Utility Commission (PA PUC) has asked FERC to change how PJM evaluates its economic transmission projects, termed “market efficiency” projects, arguing that the current method (1) treats consumers in different parts of the region differently and is thus discriminatory, and (2) it can approve projects that raise costs across PJM as a whole. E3 Partner Zachary Ming filed testimony on behalf of the PA PUC, examining how PJM calculates the consumer benefits of market efficiency projects.
PJM currently evaluates market efficiency transmission projects by just considering benefitting customers, not all customers. The complication is that relieving congestion does not necessarily lower prices everywhere. Downstream of the constraint, prices fall as cheaper generation becomes deliverable. Upstream, prices can and often do rise, because local generation is now being exported to the wider region. But when PJM totals up the consumer benefits of a candidate project, it sums only the zones whose load energy and capacity payments decline. Zones whose payments increase are not used to calculate the region’s net benefit; instead, they are ignored from the evaluation methodology entirely.
To show what this omission can do, the testimony works through a simplified example of a two-zone system. The increase in load payments upstream is larger than the decrease downstream, so consumers across the system pay more in aggregate even before anyone pays for the transmission line itself. The project would nonetheless clear PJM’s approval threshold. As Zach puts it in his testimony:
“Why not just skip the transmission project altogether and simply take $600 million from the non-benefitting zone and give it directly to the benefiting zone? Both zones would be better off than building the transmission. Clearly such a proposition is nonsensical, but the mere possibility that it exists demonstrates that the status quo can yield wasteful transmission investment.”
The testimony also uses real PJM-approved market efficiency projects to further emphasize the point. He reviewed three candidate projects from PJM’s recent Regional Transmission Expansion Plan cycles: the Goalders Creek substation expansion, the Museville-Smith Mountain upgrade, and the multi-driver project in the COMED-NIPSCO-AEP area. Two clear the bar under either method. In the third, the higher load payments borne by COMED customers nearly cancel out the savings delivered to every other zone, and once the cost of the line is included the project leaves PJM consumers roughly $66 million worse off in present value terms. PJM’s Independent Market Monitor reached the same conclusion on that project and has been raising the underlying issue in its State of the Market reports and FERC filings for years.
The testimony also situates PJM in broader context. We reviewed the economic transmission evaluation frameworks used by MISO, SPP, NYISO, ISO-NE, CAISO, ERCOT, and AESO and they all agree on one thing: every one of them includes all zones in the benefit calculation regardless of which direction a zone’s costs move.
The remedy proposed is to remove two sentences from PJM’s Operating Agreement to leave the existing benefit formulas intact and simply apply them to every zone, so that projects lowering costs for PJM consumers as a whole continue to pass.
Read the full testimony >
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