UPDATE: This story has been updated to include comments from the PJM Interconnection.
Dive Brief:
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The Federal Energy Regulatory Commission should reject the PJM Interconnection’s proposal to broadly allocate about $5.1 billion in transmission costs needed mainly to handle data center load growth in Northern Virginia, according to the Maryland Office of People’s Counsel, or OPC.
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The data center growth is driven by state and local policies in Virginia and therefore the transmission projects related to those incentives should be paid for by Virginia ratepayers under PJM’s “multi-driver” cost allocation formula, which largely assigns costs to the state causing them, the ratepayer office said in a Friday filing at FERC.
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“PJM’s proposal is fundamentally unfair to Maryland utility customers,” Maryland People’s Counsel David Lapp said in a press release. “It would impose massive cost burdens on Maryland customers even though almost all the benefits of the transmission projects will occur in Virginia.”
Dive Insight:
The dispute centers on PJM’s 2022 Regional Transmission Expansion Plan Window 3, which resulted in a set of transmission projects the grid operator says are needed in response to data center load growth and power plant retirements.
PJM’s board approved the projects in December and the grid operator last month asked FERC to approve a plan allocating their costs.
Using its default cost allocation methodology, PJM allocated the transmission costs across its footprint, with ratepayers in Northern Virginia set to pay about $2.5 billion, customers of Maryland utilities — Allegheny Power, Baltimore Gas & Electric and Potomac Electric Power Co. — paying $551 million and other PJM transmission owners paying about $2.1 billion, according to the OPC.
The proposal violates FERC’s principle that transmission costs should be roughly allocated based on who benefits from the projects, Ron Nelson, senior director at Strategen Consulting, said in testimony supporting the ratepayer advocate’s office.
“The aggregate benefits of these transmission projects clearly include the economic benefits that will be realized by Virginia — and not by Maryland — through the development of new data centers,” Nelson said.
PJM should have used its multi-driver cost allocation methodology, which assigns transmission costs caused by state public policy objectives and requirements to that state, according to the OPC.
In 2010, Virginia enacted a law granting data centers retail sales and use tax exemptions in an effort to spur data center growth in the state, according to the OPC. Virginia estimates that data centers will receive about $3.6 billion in tax subsidies in fiscal years 2022 to 2025, the ratepayer advocate said.
“While Public Policy Requirements and Objectives have largely been defined as those related to renewable energy requirements, the Data Center Exemption represents a similar state-driven policy with comparable impacts on the power system,” Nelson said.
Also, the OPC objected to PJM’s plan to base any “construction work in progress” incentives on 2022 load instead of 2028 forecast load. If it is based on 2028 load, when the data centers are expected to be operating, Northern Virginia would pay a larger share of the CWIP allocations as it should under FERC’s “beneficiary pays” cost allocation principle, according to the OPC
PJM followed its FERC-approved cost allocation methodologies and planning process to select transmission solutions to address reliability needs driven by increased load forecasts, according to Dan Lockwood, a spokesman for the grid operator.
“Those [cost allocation] methodologies assign costs to service areas in the PJM footprint based on the benefit to the system in those areas,” Lockwood said in an email. “Maryland’s electricity consumers will benefit from this transmission buildout; it is designed to solve not only for new demand entering the system, but also for generation retirements in the PJM footprint, including retirements in Maryland.”
PJM asked FERC that its proposed cost allocation be allowed to take effect by April 9.
