Increased Transmission Costs a Concern
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December 2017
There is a growing issue regarding the lack of oversight for supplemental transmission projects and skyrocketing transmission costs.
Transmission rates across the PJM Interconnection (PJM) territory have increased dramatically from 2011 to 2017, in some areas by more than 465 percent.
There are two types of transmission projects within PJM, the regional transmission organization that coordinates the electric transmission grid for the portion of the country where the majority of AMP members are located. “Baseline” transmission projects address reliability concerns, and, according to PJM, undergo a thorough open and transparent review and scrutiny by PJM and are ultimately approved by the Federal Energy Regulatory Commission (FERC).
“Supplemental” transmission projects are changes to the transmission system that are not required to satisfy reliability, operational performance or economic criteria. Supplemental transmission projects do not receive the same review by PJM, even though the costs for these projects are also passed on to consumers. This lack of meaningful oversight means it’s nearly impossible for energy consumers—who ultimately bear the costs of these projects—to verify that they’re getting their money’s worth.
American Municipal Power, Inc. (AMP), recently commissioned a review of transmission project costs across the PJM territory. The review, conducted by Ken Rose — a nationally-recognized expert in the structure, regulation and economics of U.S. energy markets — found that the portion of transmission rates that includes supplemental projects for the PJM territory increased considerably in a short amount of time ranging from 20 percent to upwards of 465 percent. Additionally, the portion of the transmission rates that includes baseline projects has increased by nearly 300 percent since 2011.
“Investing in transmission infrastructure to ensure a resilient power grid is a legitimate undertaking, and one that AMP and its members support,” said AMP President and CEO Marc Gerken. “But we’re seeing a troubling increase in projects that lack independent oversight, along with a steep increase in transmission costs for energy customers. Consumers must have the ability to verify that transmission owners are engaging in cost-effective and efficient grid upgrades and expansion that take into account the future needs of a rapidly evolving industry.”
In his review, Ken Rose found that transmission projects are on the rise across PJM. From May 2011 through May 2017, the annual revenue requirement (the actual cost for transmission owners to provide transmission service plus a return on their capital investment) for transmission enhancement projects increased by 294.5 percent. He also found that through 2012 there was approximately $21.3 billion of PJM in-service or planned baseline and network upgrades compared to $6.8 billion in supplemental transmission projects. Since 2012, there have been approximately $12.7 billion in supplemental projects compared to $11.6 billion of PJM in-service or planned baseline and network upgrades. This means there were more transmission projects proposed without any true oversight than within the established PJM planning process. With the exception of 2016, the amount of supplemental transmission projects has steadily increased each year.
“There is a shift from baseline projects to supplemental projects as revenue requirements and transmission rates have gone up, a lot – way beyond the levels of inflation,” said Dr. Ken Rose. “Basically, if you continue to have a process where it is fairly easy for the regulated entity to pass project costs through, there is going to be an incentive to continue pursuing supplemental projects.”
AMP has been calling attention, at PJM and with federal policymakers, to the lack of meaningful oversight over supplemental transmission projects in the PJM territory for some time. Due to the continued impact of these increasing transmission costs on members, AMP is increasing its efforts to raise awareness and seek changes to mitigate the negative affect these costs have on members and their customers. In addition to a recent review of transmission costs in the PJM territory conducted by Dr. Ken Rose, a nationally recognized expert in the structure, regulation and economics of U.S. energy markets, AMP hosted a successful media teleconference that resulted in coverage in several industry and political publications. Additionally, AMP members are being asked to weigh in with their elected officials and other key policymakers.
AMP’s members have reported similar significant increases in transmission charges over the past eight years. In four of AMP members’ transmission zones, annual revenue requirements have increased by a range of 99 percent to 214 percent over this period.
“Our costs have increased in recent years and we see no end in sight to the continued escalation of transmission costs. It is frustrating because we are not seeing any appreciable benefits to these supplemental transmission updates and have no choice but to pass these increased costs on to our customers,” said Steve Dupee, Wellington Village Manager.
It is worth noting that the concerns expressed by AMP should not be misconstrued as an unwillingness to bear costs arising from reasonable and prudent transmission expansion. AMP supports policies that reasonably promote a robust and reliable grid through the needed replacement or enhancement of infrastructure. However, we need to ensure that the right considerations are guiding the process.
“Our members are seeing their transmission rates skyrocket,” Gerken said. “We need to be able to tell them why this is happening.” Gerken said there has been little to no opportunity to review and provide written comments before project plans are finalized. “Without appropriate oversight and transparency, consumers have no way to tell if these supplemental transmission projects are prudent.”
To learn more about this issue or to view Dr. Rose’s presentation, visit the supplemental transmission page of the AMP website.
