PJM TRANSMISSION COST ALLOCATION--SOLUTION-BASED DFAX

03/01/2013
by Scott Gass, PowerGEM

There has been considerable discussion concerning the appropriate method to allocate
transmission upgrade costs, nationally and within the region served by PJM
Interconnection LLC (PJM).

The PJM experience is particularly relevant because the PJM transmission owners,
state commissions and others have been litigating transmission cost allocation issues
for many years--a process that has identified options and test ideas in the rigorous
environment of close engineering and regulatory scrutiny.

The Federal Energy Regulatory Commission (FERC) recently accepted a solution-

based distribution factor (DFAX) method in an order issued Jan. 31 in Docket No.
ER13-90-000.

In the order, FERC conditionally accepted a hybrid approach proposed by the PJM
transmission owners for allocation of costs associated with regional facilities and
necessary lower-voltage facilities.

The hybrid approach is composed of allocations based on the solution-based DFAX

method for 50 percent of the costs and a postage stamp basis for the remaining 50
percent.

In addition, all costs associated with lower-voltage facilities will be allocated using the
solution-based DFAX method as proposed by the PJM transmission owners.

This cost allocation proposal reflected the demanding experience among PJM
stakeholders and was supported by a 98 percent weighted vote of the PJM transmission
owners.

PJM previously used a static constraint-based DFAX to allocate costs for new lower-
voltage facilities and had been proposed by some stakeholders to allocate costs for
facilities that operate at 500 kV and above.
In its March 30, 2012, Order on Remand in Docket No. EL05-121-006, however, FERC
found that "using PJM's static DFAX model as the sole basis for allocating costs has
limitations that render it unjust and unreasonable for PJM's transmission facilities that
operate at and above 500 kV."

As explained below and in the PJM transmission owners' filing in Docket No. ER13-90-
000, solution-based DFAX addresses FERC's concerns with the use of the static
constraint-based DFAX for cost allocation purposes.

Previously when PJM completed a static constraint-based DFAX cost allocation, it was
calculated on a snapshot in time before the installation of the transmission upgrade. The
commission found that this snapshot approach does not consider changes to
interconnected generation and load and transmission topology.

Also, the existing static constraint-based DFAX cost allocation is determined by

calculating the zonal flow contribution on each facility that demonstrates a criteria
violation, which triggered the need for the transmission upgrade.

These violations for higher-voltage transmission upgrades typically will be spread

throughout the 15-year planning horizon.

In addition, the voltage level of the violations can range from 69 kV to 500 kV.

Determining which of the criteria violations are the primary drivers for a transmission
upgrade identified by voltage level and year of violation during the 15-year horizon can
be complicated.

In one instance, PJM identified up to 143 criteria violations for the Susquehanna-
Roseland 500-kV circuit. According to PJM in Docket No. EL05-121-006, "Performing
recurring DFAX allocations over a period of years would be virtually impossible as this
would require unwinding the transmission grid, line by line, to determine whether the
impacts driving the need for a previously approved project had changed."

The system is being evaluated continuously for reliability violations that have resulted
from system changes such as new generation, retired generation, load forecast
changes, demand resources and energy efficiency programs.
The net effect of these changes is that a new set of transmission upgrades is required
to resolve all criteria violations identified for that phase of studies.

This set of transmission upgrades will have some new transmission upgrades and
remove some previously approved transmission upgrades.

All system changes are included in the PJM Regional Transmission Expansion Plan
(RTEP) and incorporated into the system models; however, the cause and effect of the
system changes along with the masking of future violations that would have occurred
but for the modeled system upgrades is lost in the evolution.

This inability to capture the future violations that the transmission upgrade might resolve
was another concern the commission had with the existing static constraint-based
DFAX methodology.

An alternative to the existing static constraint-based DFAX methodology is a solution-

based DFAX cost allocation. The solution-based DFAX uses all of the existing PJM
DFAX methodology assumptions with one exception: The zonal flow contribution will be
calculated based on the noncontingency flow on the transmission facilities' composing
the solution identified to resolve the violation or violations, not on the facilities that were
identified as having criteria violations.

By focusing the cost allocation on which zonal loads use the transmission upgrade
instead of which loads triggered the criteria violations, the allocation is more aligned
with the loads that benefit from the upgrade. It also captures the benefit of potential
criteria violations that otherwise might have occurred and any potential operating margin
benefit from the loading transferred to the new transmission facilities from parallel
facilities.

Performing recurring cost allocations on a particular transmission upgrade to capture

system changes and the resulting shift in beneficiaries is straightforward and would not
require unwinding the transmission system.

PJM develops new system models each year that include the most up-to-date projected
system changes, and those same system models can be used to update the cost
allocations based on any shifts of zonal flow. As significant system changes occur in the
PJM footprint, such as the announcement during the past year of more than 15,000 MW
of generation retirements, the change in beneficiaries can be recalculated to better align
with the current realities of the system.

As an example, the figure shows the allocation for the 502 Junction-Loudoun
transmission project in 2010 and 2015 using the existing static constraint-based DFAX
methodology and the solution-based DFAX methodology.

Notice the allocation for 2015 for the constraint-based DFAX is marked as not
applicable (N/A) because of the difficulties in unwinding the transmission system as
discussed.

For this example, the 2010 allocations are similar for both allocation methods but the
2015 solution-based allocations change because of the proposed generation
retirements.

Method not Perfect, but Step in Right Direction

by Carl Bridenbaugh, FirstEnergy

This proposed approach, considering the response factor on the solution vs. the
constraint, considers the broader benefit of the proposed new or upgraded facility
beyond the original initiating need. Rather than simply assigning cost to the entities that
contribute to the constraint (criteria violation) for the current system condition, using the
response factor on the solution facility also considers the margin released on other
facilities that might have been approaching limits in the future. The method is generally
considering a level of operating margin provided to the system by the shift in flows to
the new facility. It is assigning cost to all users of the new facility vs. a general
socialization of costs regardless whether the facility would be used by a particular entity.
Similar to a toll road, those who use will pay, and those who don't use won't. The
method also can be updated readily as the system changes to consider new or
changing users and uses of the facility.

The method is not perfect but a big step in the right direction to consider the broader
benefits of facility improvements to the transmission system, and it provides a means to
update the uses to reflect the dynamic nature and evolution of the transmission system.
Carl Bridenbaugh is vice president, transmission, for FirstEnergy.

Solution-based DFAX will Allow Allocation Calculations to be Automated

by Steve Herling, PJM Interconnection LLC

The principle benefit of solution-based DFAX, from a PJM staff perspective, is the ability
to automate the cost allocation process. During each of the past three years, some 450
discrete transmission projects have been approved by the PJM board of managers.
Transmission projects can be driven by single reliability criteria violations or by dozens
of violations that involve different contingency pairs. Typically, the process of performing
the cost allocation calculations can require up to 40 hours of PJM staff time. In
situations where allocations from earlier years have had to be refiled as a result of either
settlements or FERC orders, the analysis has taken considerably longer because of the
need to re-establish the system conditions modeled at the time the project was first
justified. Solution-based DFAX will allow the allocation calculations to be automated
through the use of fairly simple code that links a current power flow case to the Regional
Transmission Expansion Plan database. Performing the allocations will be reduced to
minutes and can be repeated easily at any time to account for the evolution of the
configuration and uses of the grid. The solution-based DFAX approach translates to
ease of implementation and time saving for PJM staff, but the same benefits also should
provide for much greater transparency for PJM stakeholders related to the ongoing
allocation of costs for transmission infrastructure.

Steve Herling is vice president, planning, for PJM Interconnection LLC.

Author

Scott Gass is a principal consultant with PowerGEM. He is the former manager of

transmission planning at PJM. Reach him at sgass@power-gem.com.