The US Court of Appeals for the Seventh Circuit has issued an opinion relating to the allocation of costs for new transmission facilities among regional utilities in the PJM Interconnection, L.L.C. (”PJM”). In Illinois Commerce Commission et al., v. FERC et al., issued August 6, the Court considered petitions for review of the Federal Energy Regulatory Commission’s (”Commission”) decision regarding the allocation of transmission costs in PJM. While the Court affirmed the Commission’s decision to price transmission for certain existing facilities on a marginal cost basis, it granted the petitions for review of the Commission’s decision on pricing new facilities of 500 kV or greater. Historically, such new facilities in PJM were financed by regional utilities based upon the expected benefit the utility would receive from the new investment. PJM sought, and the Commission approved, a new allocation methodology, whereby the costs for 500 kV and above transmission facilities would be funded by utilities on a pro rata basis, regardless of the benefit to be received by the utility.

In its opinion excoriating the Commission’s reasoning, or more precisely the lack thereof, the Court indicated that even the Commission’s own counsel was forced to concede that it would be unreasonable to allocate costs of $480 million to Commonwealth Edison for Project Mountaineer, a new transmission project in eastern PJM, when it would receive only about $1 million of benefit. Stressing that it insinuated no view on the outcome of the remand, the Court granted the petition for review on this issue.