The PJM Interconnect LLC (PJM) and Transmission Owners Excessive Earnings Pump
On September 28, 2023, the Ohio Office of Consumers’ Counsel (“OCC”) filed a complaint with the Federal Energy Regulatory Commission (“FERC”) asking FERC to fill a large and growing “regulatory gap
The type of gap that OCC is asking FERC to fill is not new. But the context is a bit different than that associated with past gaps created by government.
Early in the last century, abusive practices of de facto monopolies and utilities were the target of various state initiatives. Because of the division of authority between states and the federal government, state efforts to address these abuses were often blocked because they were field preempted by the U.S. Constitution. Public Utilities Comm’n of R. I v. Attleboro Steam & Elec Co., 273 U.S. 83 (1927). At the same time, the federal government had not awakened to its public interest duties and responsibilities.
Because states could not lawfully do what needed to be done in the public interest and the federal government was not doing what needed to be done, utility-monopolies eagerly exploited a government-created regulatory gap at the expense of the public. This gap became known as the “Attleboro Gap”.
In 1935, Congress enacted the Federal Power Act (“FPA”) which authorized federal regulation of electricity in areas beyond the reach of state authority such as the areas within the Attleboro Gap. But Congress also extended federal coverage to some areas that previously had been lawfully regulated by states (because they did not directly burden interstate commerce.) The FPA directed the Federal Power Commission (“FPC” -- FERC’s predecessor) “to provide effective federal regulation
So, it might seem that Congress plugged the Attleboro Gap by the creation of FERC and commanding FERC to provide effective regulation of commerce that was taking place within the Attleboro Gap as well as associated electric commerce. However, what happened after Congress gave FERC its public interest mission depended and still depends on what FERC does with its authority. Unfortunately, FERC’s use of its authority has not lived up to the expectations created by the enactment of the Federal Power Act.
In late 1999, FERC issued Order 2000 to advance the formation of regional transmission organizations (“RTO”). FERC said that the goal of Order 2000 was/is to promote efficiency in the wholesale electric market and “…ensure that electricity consumers pay the lowest possible price for reliable service.” Regional Transmission Organizations, Order No. 2000, 89 FERC ? 61,285, FERC Stats. & Regs. ? 31,089 (1999) (“Order No. 2000”); order on reh’g, Order No. 2000-A, 90 FERC 61,201 (2000) (“Order No. 2000-A.) https://www.ferc.gov/sites/default/files/2020-06/RM99-2-00K_1.pdf
As OCC explains in its complaint, FERC’s Order 2000 delegated FERC's authority and oversight over electric transmission planning to FERC-approved RTOs and said that such RTOs “must have ultimate responsibility and authority for both transmission planning and expansion … and coordinate such efforts with appropriate state authorities.” Quoting from OCC’s Complaint, “FERC explained that:
[t]he rationale for this requirement is that a single entity must coordinate these actions to ensure a least cost outcome [for consumers] that maintains or improves existing reliability levels. In the absence of a single entity performing these functions, there is a danger that separate transmission investments will work at cross-purposes and possibly even hurt reliability.
Practically speaking, FERC’s Order 2000 created an authority-delegation paper trail allowing FERC to point to RTOs as being responsible for effective regulation of the expanding business of transmitting and selling electricity in interstate commerce. But whether FERC’s delegation of authority to RTOs achieved least cost outcomes, reliability improvements and effective regulation depended and still depends on what RTOs do or do not do with their delegated authority.
Despite its 2007 Order 890 addressing regional planning process requirements, FERC has not done much – and has not done anything timely -- in response to the repeated requests from consumer advocates and state regulators to plug the FERC Gap. This FERC Gap has been created by FERC’s actions, inactions and untimeliness on the implementation side of its delegated authority. The FERC Gap is not the byproduct of a division of authority between states and the federal government; it exists because FERC is not providing effective federal regulation.
On April 21, 2022 (some 15 years after FERC Order 890), FERC issued a notice of proposed rulemaking (“NOPR”) on regional transmission planning
Meanwhile, in the real world, electric transmission system owners are giddy about the earnings growth opportunities presented by FERC’s plug-and-play transmission service formula ratemaking. Every earnings call hosted by investor-owned electric utilities and their annual reports feature a glowing representation of the expected future earnings growth contributions from investing more and more and more money in transmission projects that are “in the pipeline”. (If you are looking for a real-world example of the Averch-Johnson effect - https://regulationbodyofknowledge.org/glossary/a/averch-johnson-effect-aj-effect/ --, look no further.)
While AEP is not alone, here is what AEP said in its most recent 10 K (https://d18rn0p25nwr6d.cloudfront.net/CIK-0000004904/849094a1-243f-4116-9c0e-335abcbe1ed5.pdf page 32) filed with the Securities Exchange Commission:
A significant portion of AEP’s earnings is derived from transmission investments and activities. FERC policy currently favors the expansion and updating of the transmission infrastructure within its jurisdiction. If the FERC were to adopt a different policy, if states were to limit or restrict such policies, or if transmission needs do not continue or develop as projected, AEP’s strategy of investing in transmission could be impacted. Management believes AEP’s experience with transmission facilities construction and operation gives AEP an advantage over other competitors in securing authorization to install, construct and operate new transmission lines and facilities.
Here is what FirstEnergy Corp (“FirstEnergy”) said in its second quarter 2023 financial report https://finance.yahoo.com/news/firstenergys-fe-q2-earnings-revenues-115000629.html :
Regulated Transmission: Earnings from this segment were $520 million, up 17.9% from the prior-year quarter. The second-quarter results were driven by the company's ongoing Energizing the Future investment program.
These AEP and FirstEnergy transmission earnings growth business plans are being pursued under the PJM-RTO umbrella. PJM is a FERC-approved RTO that operates in parts of 13 states and the District of Columbia.
And while FERC is ducking (sometimes through delegation) its effective regulation charge from Congress, transmission owners and their affiliates operating within PJM are exploiting the FERC Gap to erect and fortify transmission service monopolies and satisfy their lust for what effectively amounts to unregulated earnings growth fueled by rapidly rising electric bills. And real control over transmission facilities, investment and earnings is being increasingly rebundled with transmission facilities ownership.
Instead of the type of open, non-discriminatory, unbundled and comparable access that was supposed to, according to FERC, remediate the harms of the anticompetitive vertically integrated electric sector, customers (wholesale and retail) have been tossed from the frying pan and into the fire. Consequently, customers are being denied meaningful market opportunities to mitigate the ongoing and substantial FERC-approved transmission rate increases. Recourse to distributed energy resources (DERs), demand response at critical peak hours, other electric transmission substitutes and access to competitive transmission service providers is promised in print but stymied by layers of institutional dysfunction.
Although FERC’s Order 2222 suggests FERC is eager to facilitate efforts by aggregated DERs to enter the market, FERC's dominant and overarching behavior pulls in a very different direction.
It has been more than 27 years since FERC issued Order 888 in which it found that the vertically integrated structure of the electric sector is anticompetitive. But FERC continues to slow walk meaningful identification of remedial actions to address evolving anticompetitive schemes. It seems content to point to its RTO agents as being responsible for fulfilling the obligations Congress placed with FERC.
Now, before you leap to a conclusion that FERC’s disinterest in the abrupt and persistent transmission rate increases and anticompetitive schemes is somehow connected to any political party affiliation or “deregulation”, take heed. Increased investment and the resulting transmission rate increases are championed by environmental groups and their allies as the means to integrate more and more and more intermittent “renewable” energy resources. Big government likes a big and expensive transmission grid. The broad revenue collection capabilities of network utilities with captive customers provides government and government officials with an attractive means of using utility networks and utility customers to fund the pursuit of bright shiny objects – funding that would otherwise require transparent taxpayer funding and elected official accountability to voters. Ratepayers don’t get to vote on utility charges.
Below, I try to connect some dots. If you think FERC’s agent, PJM, is going to earnestly do anything to discipline its transmission owners’ spending, rapidly increasing prices and earnings growth lust, I hope to convince you otherwise.
As you may know, FERC removed a 50-basis points return on equity ("ROE") bonus from the transmission service revenue requirement of Ohio Power Company (d/b/a AEP Ohio, a wholly owned subsidiary of American Electric Power or AEP) and Dayton Power & Light Co (d/b/a AES Ohio a subsidiary of The AES Corporation). FERC removed the ROE bonus because it was available to transmission owners that voluntarily joined a FERC-approved regional transmission organization (“RTO”). Since the law of Ohio (R.C. 4928.12) requires every transmission entity in Ohio to be a member of a FERC-approved RTO, FERC reasoned that the ROE bonus was an unnecessary inflation of AEP Ohio’s and AES Ohio’s just and reasonable transmission service revenue requirement. Dayton Power & Light Co. ,176 FERC ? 61,025 (2021) reh’g denied 178 FERC ? 61,102 (2022); Office of the Ohio Consumers’ Couns. v. Am Elec. Power Serv. Corp. et al 181 FERC ? 61,214 (2022) reh’g denied, 183 FERC ? 61,034 (2023). However, and at least for now, FERC refused to extend the ROE bonus removal to the transmission service revenue requirement of American Transmission Systems, Inc (“ATSI” - FirstEnergy Corp.’s transmission affiliate) and Duke Energy Ohio, LLC because their transmission rates were set through a comprehensive settlement that got in the way of identifying a 50-basis points downward ROE adjustment.
After these FERC decisions, American Electric Power Service Corporation (“AEPSC”, AEP Ohio’s affiliated transmission service agent), AES Ohio, Duke Energy Ohio LLC and ATSI circled the wagons to prosecute an appeal of the FERC decisions removing the ROE bonus. That appeal is currently pending in the federal Sixth Circuit Court of Appeals where PJM has intervened to support the transmission owners attack on FERC’s ROE bonus removal decisions. Along the way, PJM said (in its brief) that the FERC decisions will affect all parties that provide transmission service and their customers. But PJM then ignored customer impacts in favor of joining the transmission owners’ campaign to restore the 50-basis points ROE bonus and increase transmission service rates. This is PJM’s response to FERC’s delegation of authority to PJM to ensure that electricity consumers pay the lowest possible price for reliable service.
In removing the 50 basis points ROE bonus, FERC pointed to an Ohio Statute, R.C. 4928.12 (https://codes.ohio.gov/ohio-revised-code/section-4928.12 ), that requires Ohio transmission owners to be members of a FERC-approved RTO and said the ROE bonus is confined to transmission owners that are not obligated to be members of a FERC-approved regional transmission organization (“RTO”). In response, PJM and the transmission owners are asserting that the Ohio statute is field, and conflict preempted by federal law. (The utilities resorted to the old Attleboro Gap argument.)
As FERC explained when it removed the ROE bonus from AEP Ohio’s and AES Ohio’s transmission revenue requirement, it still left these transmission owners with just and reasonable compensation. But just and reasonable compensation is not enough for transmission owners.
Ohio is one of five states that mandate RTO participation by transmission owners; four of those states are states in which AEP Ohio or affiliates operate transmission facilities. Also, AEP joined an RTO (PJM) to fulfill a commitment it made to secure approvals of a 2000 merger involving Central & Southwest Corp. Additionally, AEP Ohio has used its membership in PJM to explain why its applications seeking approvals of mergers and asset transfers don’t raise concerns about increased market concentration or cross subsidization. See Ohio Power Company, FERC Docket EC13-26-000.
Connecting the dots indicates that that these utilities and PJM will claim that RTO membership is voluntary when voluntary membership yields an ROE bonus (prices above the lowest possible rate) but utilities will flash their commitment to participate in PJM when it helps them secure other regulatory approvals.
The public record has ample information on the runaway transmission owner investment (mostly for “supplemental projects”) and rate increases that FERC and its RTO agents have formulaically let loose on the public interest.
Supplemental projects are defined in PJM’s Operating Agreement (https://www.pjm.com/directory/merged-tariffs/oa.pdf at page 63 of the PDF, emphasis added):
‘Supplemental Project’ shall mean a transmission expansion or enhancement that is not required for compliance with the following PJM criteria: system reliability, operational performance or economic criteria, pursuant to a determination by the Office of the Interconnection and is not a state public policy project pursuant to Operating Agreement, Schedule 6, section 1.5.9(a)(ii). Any system upgrades required to maintain the reliability of the system that are driven by a Supplemental Project are considered part of that Supplemental Project and are the responsibility of the entity sponsoring that Supplemental Project.
That’s right, a local, or supplemental, project is defined in the PJM Operating Agreement as an expansion or enhancement that is not required for compliance with PJM system reliability, operational performance, or economic criteria. Essentially, Supplemental Projects are what transmission owners say they are.
Tables show Ohio transmission project costs and project volume by category for the years 2015 through 2022 (based on state infrastructure report information provided by PJM -- https://www.pjm.com/library/reports-notices.aspx ). The tables are included in supportive comments (https://dis.puc.state.oh.us/ViewImage.aspx?CMID=A1001001A23K09B53226F01620 ) recently filed in the abovementioned OCC complaint case by Ohio’s Office of the Federal Energy Advocate.
These tables document the extraordinary escalation in transmission owner investment in supplemental projects which is fueling sharp and persistent increases in the cost of electric transmission service. In other words, transmission owners’ supplemental projects are “killing it”. Piling a 50-basis points ROE bonus on top of a transmission owner’s FERC formula rate just and reasonable revenue requirement is potent fuel for transmission owners' earnings growth pump.
So, you might ask, how can it be that FERC-regulated electric transmission owners are getting away with this transmission service rate shock assault on wholesale and retail electric customers? Perhaps the 2022 written comments of Public Utilities Commission of Ohio (“PUCO”) Commissioner Dan Conway in FERC Docket AD22-8-000 and PUCO Docket 22-7000-EL-FAD may offer some insight (https://dis.puc.state.oh.us/ViewImage.aspx?CMID=A1001001A22J05B31724A00477 , emphasis added).
PJM’s RTEP identifies regional reliability needs, not projects, and it is up to the incumbent TOs [transmission owners] and competitive project developers to submit projects that cost effectively address and solve the identified needs. Each project will have different characteristics and may offer a differing suite of associated costs and benefits. The PJM stakeholder community decides which solution it finds compelling and which solution offers the best cost/benefit profile.
The effectiveness of the RTEP process is going to be limited to the scope of the needs that the RTEP identifies and the baseline transmission projects to which these criteria are applied. (Example: if these RTEP baseline evaluation factors are applied to only 20% of transmission project costs, i.e., the baseline project costs, that may be very effective, but only for 20% of the transmission projects being developed in the region.)
Although the RTEP process may have generally worked well with respect to baseline transmission projects, and with addressing, solving, and achieving regional reliability objectives, Ohio is concerned with the extent of supplemental (local) projects that the Ohio TOs have planned and developed over the last 5 to 10 years. More specifically, Ohio is concerned about the magnitude of capital expenditures on them, and the rate impacts that result. We are concerned about the lack of sufficient oversight with respect to local planning and the impacts it might be having on costs that our ratepayers ultimately bear. Such projects are only reviewed by PJM, essentially on a project-by-project basis, to confirm that on an individual basis the supplemental local project is not required to solve a deficiency that has been identified for the regional transmission system.
With regard to the magnitude of capex for these local [supplemental] projects in recent years, as we mentioned in our NOPR comments, if RTEP planned baseline projects are only a small fraction of the total projects being developed in the region, and the supplemental local projects comprise the great majority of projects – and capital expenditures -- in the region, that raises the question: Is the planning process still sufficiently regional? We think that the NOPR’s proposal regarding local planning reform, which appears to be modeled after PJM’s M-3 process for supplemental projects, would spread this problematic approach to other regions.
The goal should be to properly define the priority of local planning within the overall scope of planning for all reliability needs, both regional and local, so that the local plan does not, inadvertently, replace the role of regional solutions that address regional reliability objectives.
The reality in PJM is the exact opposite. We are concerned that supplemental projects are crowding out projects that otherwise would have been selected through the regional planning process. This will continue to be the case while incentives exist that make supplemental projects more appealing to incumbent TOs [transmission owners]. Supplemental projects are subject to transparency requirements through the M-3 process but are driven by TO identified needs only. Stakeholders have no recourse within that process if they believe the project is not needed or is a suboptimal solution. Supplemental projects are also not subject to competition.
In other words, transmission owners are harvesting significant earnings growth through their Ohio transmission service offerings, in part, because: (1) PJM and FERC are not subjecting supplemental projects to front-end, transparent and stakeholder-involved review and analysis through the existing PJM RTEP process; (2) FERC and PJM are not integrating both local and regional planning to identify optimal transmission solutions (including demand response, distributed energy resources and other non-transmission options) AND (3) FERC and PJM are shielding incumbent transmission owners from meaningful competition.
By looking a bit closer at the transmission abuses being pursued in the FERC Gap, you can begin to see some of the layered complexity of the excessive earnings, excessive prices, anticompetitive, discriminatory and non-comparable consequences.
PJM’s pricing structure for transmission service allocates integrated network transmission service (“NITS”) revenue and pricing responsibility based on, for the most part, each transmission service customer’s network service peak load (“NSPL”). The NSPL is computed based on a customer’s demand at the time of the transmission zone’s highest annual hourly coincident peak(s). This billing determinant and allocation factor changes from year to year based on the relationship between each individual customer’s relevant NSPL(s) and the system's relevant zonal coincident NSPL(s).
Every Ohio retail customer served by an investor-owned electric distribution utility (“EDU”) such as AEP Ohio, Duke Energy Ohio, Dayton Power and Light and the FirstEnergy EDUs has an NSPL or “transmission tag”. Only the incumbent electric utility may know a customer’s NSPL tag. For interval metered customers, the NSPL is based on actual data except for new customers where an estimated NSPL is assigned until actual data is accumulated. For other customers, a proxy value may be used to set each customer’s NSPL.
Where NSPL based billing for transmission service is in place, customers have a fighting chance to reduce their electric transmission service spend while, at the same time, modifying their demand to relieve reliability-related stress on the transmission system (to help to keep the lights on). Seems like NSPL billing ought to be a no brainer, right?
But if Ohio customers start responding to a transparent NSPL price signal (as customers are doing when they are billed based on their NSPL), it might be harder for transmission owners to claim a need for extra transmission investment that feeds their earnings growth ambitions.
This problem is not hypothetical. For example, AEP Ohio and other Ohio electric distribution utilities are working to blind Ohio retail customers to the actual cost of transmission service and obscure the transmission service cost causative meaning of the NSPL billing determinant.
AEP Ohio purchases transmission service pursuant to the PJM Open Access Transmission Tariff (“OATT”) based on PJM’s NSPL billing determinant for AEP Ohio retail customers. But AEP Ohio’s retail customer transmission service cost recovery is not based on AEP Ohio’s actual cost of transmission service as invoiced to AEP Ohio by PJM pursuant to PJM’s OATT.
Instead, AEP Ohio and its operating company affiliates providing service within the PJM footprint, send their individual NSPL-based PJM transmission service bills to their affiliate, AEPSC. AEPSC then adds up the individual NSPL-based PJM bills and rebills the totalized amount to AEP Ohio and its affiliated operating companies using a completely different allocation factor (a 12CP allocation factor).
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In other words, AEP Ohio’s retail electric customers are NOT paying for transmission service based on the cost dictated by the PJM OATT as applied to their NSPLs. AEP Ohio’s transmission cost recovery mechanism makes Ohio retail customers responsible for an AEP East system-wide socialized cost of transmission service. In the end, there is no connection between the actual cost of AEP Ohio transmission service purchased from PJM and the total cost of transmission service that AEP Ohio is imposing on Ohio retail electric customers. This layered obfuscation of the actual cost of transmission service and the cost causative NSPL statistic leaves AEP Ohio retail electric customers clueless about the real driver for transmission service cost and how to use their resources (including demand response) manage their transmission spend and help to keep the lights on.
And to make matters worse for customers trying to figure out how to manage their transmission spend, AEP Ohio takes its AEPSC rebilled cost of PJM transmission service and then bills it out to demand metered retail customers based on each customer’s monthly billing demand using a 30-minute integrated demand measurement. This monthly billing demand statistic has no connection to any customer’s NSPL or AEPSC’s 12 CP rebilling allocation factor. Even if a business knew its NSPL and understood that reducing its NSPL might help to reduce transmission cost, the AEPSC and AEP Ohio rebilling scheme prevents a customer from doing so. In fact, customers that reduce their NSPL may find that their retail transmission service bill goes up.
By letter dated June 13, 2023 (https://www.pjm.com/-/media/about-pjm/who-we-are/public-disclosures/20230614-oh-legislative-committees-letter-regarding-il-ceja-analysis.ashx ), the Ohio House Public Utilities Committee and Senate Energy and Utility Committee notified PJM’s Board of Managers of Ohio’s growing concerns about PJM making Ohio electric customers responsible for transmission system upgrades resulting from things like the state-specific requirements in Illinois. In this context, Ohio legislators may want to consider the undue burdens that are being imposed on Ohio electric customers by the multi-state transmission cost socialization scheme created by AEP Ohio and affiliates.
“Customer choice” barriers and their prejudice on Ohio customers are growing in Ohio notwithstanding the PUCO’s direction that its Staff and other stakeholders use discrete regulatory proceedings to broaden “…the opportunity for customers to act on their supply and demand side preferences regarding the delivered price, mix, and availability of innovative competitive and non-competitive products and services.” In the Matter of the Commission’s Investigation into the Implementation of the Federal Infrastructure Investment and Jobs Act’s Demand Response PURPA Standard, Case No. 22-1024-AU-COI, Finding and Order, ?28 (November 1, 2023).
The comparability, discriminatory and anticompetitive behavior problems mentioned above are not new. The existing barriers to opportunities for Ohio customers to mitigate increases in their transmission service cost and unlock the value of customer-sitied resources have been publicly identified by AEP Energy, AEP Ohio’s competitive affiliate.
Transmission of electricity from power generators to energy end users forms the core of our electric grid. Costs incurred for transmission service and reliability represent a key price component of energy bills for consumers.
Transmission: A cost derived from the delivery of energy from generators to consumers in a utility service area. Transmission costs fluctuate by utility and are determined by customer’s Network Service Peak Load (NSPL) and Transmission rate (NITS).
Network Service Peak Load (NSPL): NSPL is a value unique to each customer and is determined by their energy demand level during their local utility’s zonal transmission network peak(s).
Network Integrated Transmission Service (NITS): NITS rate is based on the Federal Energy Regulatory Commission’s (FERC) formula filing, taking into account all the dollars spent on transmission projects and maintenance. The NITS value is specific to a utility and may or may not change annually.
Transmission rates and service schedules are formed by Transmission Owners under the jurisdiction and oversight of the Federal Energy Regulatory Commission (FERC), and are administered by Regional Transmission Organizations (RTO), such as PJM and MISO.
In most jurisdictions, transmission costs are assessed on retail energy suppliers by the RTOs. These costs are based on the Network Service Peak Load (NSPL) contributions of the retailers’ customers and the effective transmission rates.
Within the utility service areas of Ohio transmission is billed by the local utility as part of its bundled rate tariffs. Here transmission rates are most typically based on your monthly (non-coincident) peak demand, which makes controlling transmission costs more difficult.
(AEP Energy website discussion of transmission service cost management https://www.aepenergy.com/blog/transmission-services-overview/ emphasis added)
A paper by Ryan Schuessler and John A Seryak, of Go Sustainable Energy, LLC also describes the disadvantages that Ohio transmission service pricing imposes on Ohio-based manufacturers wishing to mitigate the sharply increasing cost of transmission service. The paper offers the following conclusions:
The six case studies described above, as well as our experience working with manufacturers looking to reduce their transmission costs, have shown us without a doubt that manufacturers have both the ability and desire to reduce load either through active management or investment in DER [distributed energy resource] technologies.
However, good rate design is essential to promoting this behavior. The current status quo in Ohio of billing out transmission on monthly peak demand prohibits manufacturers from responding to transmission critical peaks. The pilot rate structures and opt-outs have changed this, but only for a limited set of manufacturers. Ohio needs to adopt transmission billing that is based on the NSPL, rather than monthly demand.
(A Transmission Critical Peak Pricing Pilot for Manufacturers in Ohio, https://www.aceee.org/sites/default/files/pdfs/ssi21/panel-4/Seryak.pdf emphasis added)
AEPSC’s rebilling of PJM’s NSPL based transmission service cost to AEP Ohio and AEP Ohio’s subsequent rebilling of the AEPSC bill also seems to violate a FERC and Ohio fundamental requirement.
Ohio law requires the unbundling of generation, distribution and transmission services. It gives retail electric customers and competitive retail electric services (“CRES”) providers access to and use rights of comparable and non-discriminatory unbundled distribution and transmission service. R.C. 4928.02, R.C. 4928.03, https://codes.ohio.gov/ohio-revised-code/section-4928.02 and https://codes.ohio.gov/ohio-revised-code/section-4928.03 .
As discussed below, the concept of comparability means any Ohio electric distribution utility (such as AEP Ohio) must allow customers and CRES providers to have access to unbundled distribution and transmission service at rates and on the same terms as are available to AEP Ohio. And the comparability requirement extends to all services that a transmission service provider can provide not just the services provided to itself. Any type of transmission service (including ancillary services) the utility is capable of providing must be provided to others. See Preventing Undue Discrimination and Preference in Transmission Services FERC Docket No. RM05-25-00 at page 13 (2005) https://www.ferc.gov/sites/default/files/2020-05/E-1_84.pdf and https://www.federalregister.gov/documents/2007/03/15/E7-3636/preventing-undue-discrimination-and-preference-in-transmission-service (2007)
FERC Order 888 and FERC Order 889 require all transmission service providers to file tariffs providing comparable and nondiscriminatory access to all transmission service customers. Comparability is the underpinning of FERC's efforts to prevent and remediate anticompetitive behavior. And, importantly, every Ohio retail electric customer served by an EDU is an “eligible customer” by the terms of the FERC-approved PJM OATT.
Comparability requires that each transmission owner must provide transmission service to all other market participants (including retail customers in “customer choice” states like Ohio) at prices and on terms comparable to those under which it provides transmission service to itself. Yet, because of the rebilling layers described above, no AEP Ohio retail customer has access to unbundled transmission service at the prices and on terms comparable to those available to AEP Ohio.
AEP Ohio is also using rights assignment requirements to prevent CRES providers from obtaining and paying for transmission service based on the PJM OATT under which AEP Ohio purchases transmission service. These restrictions preclude CRES providers from working with Ohio retail customers – as they do in other customer choice states – to help customers reduce their transmission service spend and, among other things, effectively use their demand response resources.
If FERC and its RTO agents continue to disregard their responsibility to ensure that electricity consumers pay the lowest possible price for reliable service, you might wonder what Ohio can do help Ohio retail customers avoid further prejudice? How can Ohio customers use self-help and market forces to get a handle on their transmission service spend? How can they obtain and pay for transmission service based on the actual cost of transmission service and make usage decisions based on their NSPL? The answer to these questions is relatively simple because these opportunities existed in the past before Ohio electric distribution utilities ("EDUs") changed the rules.
Empowering customers to mitigate the sharp increases in transmission service costs requires that they not be captive to the predatory, non-comparable and prejudicial bundled distribution and transmission service pricing of Ohio’s incumbent electric distribution utilities – pricing that benefits their transmission affiliates and (as explained above) puts Ohio businesses at a competitive disadvantage. Allowing retail customers to elect to bypass the incumbents EDU's transmission service pricing with the help of their customer-selected CRES provider was permitted in Ohio the past. It is what customers and CRES providers are doing and have been doing in other states.
In Ohio, PJM is THE transmission service provider, not Ohio EDUs. Ohio EDUs are supposed to be default resellers of PJM provided transmission service when, and only when, retail electric customers do not elect to obtain transmission service through their CRES provider.
Shopping retail electric customers had a choice over their transmission service provider in Ohio for many years until incumbent Ohio electric utilities changed the rules to benefit their affiliated transmission lines of business and to advance their earnings growth ambitions.
The suggestion that Ohio retail customers be released from the transmission service captivity that is imposing a unique disadvantage on Ohio businesses might be read as an indication that Ohio law needs to be changed. Not so.
As already indicated, Ohio retail customers and their CRES providers had the ability to procure transmission service from the PJM OATT before Ohio electric utilities introduced restrictions in their tariffs that made PJM OATT eligible customers captive to Ohio EDUs' bundled distribution and transmission service. And these captive customer restrictions have been put in place even PUCO rules in O.A.C. Chapters 4901:1-35 and 4901:1-36 require that an incumbent electric distribution utility’s transmission cost recovery mechanism be avoidable by customers served by CRES providers.
Freeing Ohio retail customers from transmission service captivity and allowing CRES providers to directly access PJM’s transmission service is unlikely to have a significant near-term impact on the runaway transmission investment and price increases described above. As OCC’s complaint documents, FERC has done too much to put customers in harm’s way. FERC has displayed no meaningful interest is plugging the FERC Gap. Maybe that will change but FERC change comes very slow if at all.
In the meantime, the PUCO has authority to once again allow Ohio CRES providers and their customers elect to directly access the PJM OATT as is being done in other states. Doing so will give customers a tool and some market-based optionality to mitigate the unique captive-customer disadvantage that is being imposed on Ohio businesses.
It is reasonable to expect Ohio EDUs will push back on efforts to allow customers to escape from the EDUs' transmission service captivity and claim that information on customer bill impacts needs to be gathered and carefully studied through a deliberative process. They will claim that much care needs to be taken before following the law so Ohio customers can do what customers in other states are doing and what Ohio customers did in the past.
But this paper is not recommending that all customers must pay for transmission service based on their individual NSPLs and the PJM OATT. That may be something that is required by federal law. But, the suggestion here is to allow customers served by CRES providers to elect to avoid Ohio EDU electric transmission service captivity and work with their CRES providers to obtain transmission service pursuant to the PJM OATT. The suggestion here is to allow such customers to exercise the rights they have under Ohio and federal law if they so choose.
To a limited extent, this election process is occurring now. But it is slow and being controlled by the Ohio EDUs and certain stakeholder groups who have been given an allotment of preferential rights to get out of EDU transmission jail.
The PUCO has also allowed some customers to escape EDU transmission service captivity by approving “special contracts” or reasonable arrangements that can be approved pursuant to R.C. 4905.31. https://codes.ohio.gov/ohio-revised-code/section-4905.31 . And it should be no surprise that the number of customers asking the PUCO to be released from transmission service captivity is growing for the reasons explained above.
So far in 2023, SAI US, Inc. (initial capital investment of $2.29 million in Marietta, Ohio), Crown 56 LLC (initial capital investment of $6.6 million in Harrison County), Amazon Data Services, Inc. (Columbus, Ohio region), the City of Akron (capital investment of over $600,000,000 for water and wastewater treatment systems), and Akron Energy USA (estimated minimum capital investment of $50,000,000) have filed applications seeking PUCO approval of reasonable arrangements that would release them from the EDU transmission service captivity.
Here is what Ohio businesses and Cities are saying about the importance of being allowed to escape EDU transmission service captivity and pay their actual cost of transmission service based on their NSPL:
Crown66
Data centers, like Crown56’s Hopedale facility, are highly sensitive to electricity prices because electricity is a major cost component for their operation. As noted above, Crown56 can manage its demand during times of transmission peak demand by voluntarily curtailing its usage. However, the default billing methodology for transmission service does not allow certain mercantile customers to benefit from managing their transmission peaks. Through the unique arrangement proposed herein, Crown56 will be billed based on its demand during the AEP Transmission Zone 1 Coincident Peak (i.e., based on their Network Service Peak Load “NSPL” demand). This will align cost incurrence with the billing methodology and send the appropriate pricing signal for Crown56 to reduce its consumption during times of system constraints. By curtailing its usage during the AEP Transmission Zone 1CP, Crown56 will reduce the costs that flow to AEP Ohio that ultimately are recovered from all customers through the BTCR. This rate design methodology will produce system-wide benefits for AEP Ohio and its customers.
In the Matter of the Application for a Reasonable Arrangement Between Crown 56, LLC and Ohio Power Company, PUCO Case No. 23-0886-EL-AEC (September 13, 2013) https://dis.puc.state.oh.us/ViewImage.aspx?CMID=A1001001A23I13B72914F01329
The City of Akron
The City is currently unable to use these back-up generators to effectively reduce transmission costs under Ohio Edison’s Rider NMB, through which Ohio Edison recovers charges, including Network Integration Transmission Service (“NITS”) charges imposed by the Federal Energy Regulatory Commission (“FERC”) or PJM.
Ohio Edison bills the Water Reclamation and Water Treatment facilities as General Transmission (“GT”) customers. Rider NMB charges for GT customers are based on the customer’s kilovolt-amps (“kVa”) of Billing Demand, relevantly defined as the highest 30 minute integrated kVa/month, regardless of when that occurs. The Rider NMB charges cost the City approximately $173,000 for the Water Reclamation facility and $139,000 for the Water Treatment facility from December 2021 through November 2022.
Rider NMB’s rate design does not reflect PJM’s methodology for determining NITS charges applicable to Ohio Edison customers in the American Transmission System, Inc. (“ATSI”) transmission zone. PJM calculates a customer’s NITS “tag” for ATSI based on kilowatt (“kW”) consumption during the five highest peak hours (“5 CP”) for the ATSI transmission zone in a given year.
Enel X has offered to assist the City’s Water Reclamation and Water Treatment facilities in reducing their NITS tags through participation in Enel X’s Predictive Alerting Services program, which uses predictive modeling capabilities to alert the facilities to reduce their demand during potential windows that will set the relevant 5 CP transmission system peaks. However, even if the Water Reclamation and Water Treatment facilities utilized back-up generators to lower their kW consumption during anticipated 5 CP hours and decreased their NITS tag accordingly, they would not reduce their actual billed transmission charges under Rider NMB because their monthly Billing Demand would simply be calculated based on their kVa demand during a 30-minute period outside those on-peak hours. Therefore, if the City’s Water Reclamation and Water Treatment facilities continue to receive transmission service from Ohio Edison under Rider NMB, they will not have any appreciable incentive to lower their NITS tag because doing so would not lower their Rider NMB charges enough to offset the costs and effort of running the back-up generators.
The windows of time that are likely to set zonal peaks for the ATSI zone and form a basis for the Water Reclamation and Water Treatment facilities’ NITS tags often do not overlap with the overall PJM peaks on which the facilities’ capacity charges are based. Therefore, the facilities’ ongoing efforts to manage their peak demand to lower their capacity costs are unlikely to result in lower NITS tags if the facilities cannot opt-out of the Rider NMB.
In the Matter of the Application for Establishment of a Reasonable Arrangement Between the City of Akron, Ohio and Ohio Edison Company, PUCO Case No. 23-78=98-EL-AEC (August 17, 2023) https://dis.puc.state.oh.us/ViewImage.aspx?CMID=A1001001A23H17B31453I01469
As indicated by the statements quoted above, the PUCO can make progress on its stated goal of unlocking market forces to organically increase innovation and market penetration of things like smart thermostats, EV charging systems, battery storage, distributed energy resources (including backup generators and behind the meter renewable resources) and the aggregation of such resources so they can more efficiently participate in the market. All these things are part of the PUCO’s public interest future vision, and they help advance Ohio’s procompetitive and customer-centric electricity policy which is codified in R.C. 4828.02 ( https://codes.ohio.gov/ohio-revised-code/section-4928.02 ). The PUCO is charged with ensuring Ohio’s policy is effectuate (R.C. 4928.06 https://codes.ohio.gov/ohio-revised-code/section-4928.06 ).
But as with FERC’s obligation to ensure effective federal regulation of the expanding business of transmitting and selling electric power in interstate commerce, the PUCO's fulfillment of these obligations requires timely action and continuous improvement. And acting to put a stop to Ohio EDU tariff provisions and other barriers that are presently handcuffing efforts by customers and CRES providers to mitigate the disadvantages being imposed on Ohio and its citizens by the continuing sharp increases in the cost of electric transmission service deserves to should be high on the action agenda.
Restoring customers’ right to bypass the non-comparable, unduly discriminatory and anti competitive transmission service provisions in Ohio EDU tariffs will facilitate efforts by Ohio to compete in the global economy. It will provide a seedbed for innovation and help to keep the lights on.
I hope this paper is useful to Ohioans, its public servants and others.
Electricity System Economics Consultant
1 年Travis Fisher have you read this? Is there a way to download this entire post and it’s hyperlinks into a word or PDF document. Sam Randazzo