PJM transmission cost allocation–solution-based DFAX

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.


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.

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