Court overturns FERC order on PJM's allocation of transmission line costs
Originally published June 27, 2014
Reprising a five-year-old decision, a federal appeals court has again rejected a Federal Energy Regulatory Commission order approving PJM’s postage-stamp allocation of the costs of new 500-kV lines located in its eastern region. In a June 25 2-1 decision in Illinois Commerce Commission v. FERC, a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit faulted the commission for "the absence from [its] orders of even an attempt at empirical justification" for the postage-stamp approach, which allocates the cost of construction of 12 new lines in the eastern region to all PJM utilities in proportion to each utility’s electricity sales.
The court in 2009 vacated and remanded a 2007 FERC order in the proceeding that also called for a postage-stamp approach. The 2013 commission order before the court "reinstated without change the  order that we had vacated," noted Judge Richard Posner, writing for the majority.
Posner contrasted the PJM case with the same court’s ruling on the Midcontinent Independent System Operator’s (MIS0) postage-stamp allocation of costs for 500-kV lines to wind farms. In that case, the commission "had determined that the benefits from the new lines would be spread almost evenly across all the utilities," he said. "It made no such determination in the present case; as a practical matter, all it did was express a hope that things might turn out that way."
The court acknowledged that it might not be possible to calculate the benefits of the eastern lines to western utilities. "If the Commission after careful consideration concludes that the benefits can’t be quantified even roughly, it can do something like use the western utilities’ estimate of the benefits as a starting point, adjust the estimate to account for the uncertainty in benefit allocation, and pronounce the resulting estimate of benefits adequate for regulatory purposes," Posner said. "If best is unattainable second best will have to do, lest this case drag on forever."
The court again remanded the case to the commission for further proceedings.
Judge Richard Cudahy dissented, saying cost allocation "is a judgmental matter and should be treated as such," with deference given to FERC’s technical analysis.
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