By: Ric Austria, Executive Principal, Pterra Consulting and Cherry Bautista, Principal Engineer, Pterra Consulting

In May 2025, we highlighted a proposed settlement in the long-running PJM Interconnection cost allocation dispute as a potential step toward fairness and grid reliability. That agreement, advanced by the Indicated PJM Transmission Owners (ITOs), Long Island Power Authority (LIPA), Neptune Regional Transmission System, LLC, and supported by Pterra’s technical analysis, aimed to address key flaws in PJM’s solution-based Distribution Factor (DFAX) methodology through targeted revisions to Tariff Schedule 12.

On March 6, 2026, the Federal Energy Regulatory Commission (FERC) issued its Order on Remand (194 FERC ¶ 61,179) in the consolidated proceedings (Docket Nos. EL15-18 et al., EL21-39-000, ER22-1606-000, and related cases). This order significantly advances the issues while leaving one critical question open for further development.

Key Outcomes from the March 2026 Order

FERC’s ruling resolves several core disputes in favor of the complaining parties (including Consolidated Edison, Linden VFT/GE successors, Neptune/LIPA, and others):

• Elimination of the 1% De Minimis Threshold Exemption
  FERC found the de minimis provision unjust, unreasonable, and unduly discriminatory under the Federal Power Act. It violates the cost causation principle by exempting larger zones from cost responsibility simply due to their size relative to peak load, while smaller zones or merchant transmission facilities bore disproportionate shares.
  FERC directed PJM (on behalf of the Transmission Owners) to file tariff revisions eliminating the exemption, effective retroactively to June 18, 2015 (the date of initial Commission error in denying the Con Edison complaint). PJM must recalculate cost responsibility assignments for all affected RTEP projects back to that date and issue refunds/surcharges with interest within 90 days. The potential cost impact is estimated at $100 million or more for the 2020-2022 period alone.
• Rejection of the Host Zone Proposal and Related Settlement Elements
  The order rejected the ITOs’ Host Zone Proposal (ER22-1606-000) and associated settlement filings, which retained modified forms of the de minimis exemption. These were deemed inconsistent with the D.C. Circuit’s 2022 remand opinion.
• Netting Practice Upheld
  Challenges to PJM’s netting of positive and negative flows within a zone under DFAX were denied. FERC affirmed prior findings (upheld by the D.C. Circuit) that netting reasonably accounts for counterflows that create additional transmission capacity, consistent with zonal cost allocation principles.
• Reallocation Following Con Edison TSA Termination
  FERC affirmed the 2017 Cost Reallocation Order (ER17-950-006), confirming PJM’s use of the then-effective Schedule 12 methodology after termination of Con Edison’s transmission service agreements.

The Remaining Open Issue: Short-Circuit Reliability Projects

The order establishes paper hearing procedures to develop additional record evidence on the application of the solution-based DFAX method to transmission facilities addressing short-circuit reliability violations (e.g., overdutied breakers due to excessive fault current).

FERC questions whether DFAX based on steady-state power flows are just and reasonable for these projects, given that short-circuit issues are not flow-driven like thermal constraints. The Commission draws parallels to its prior rejection of DFAX for stability violations (replaced by the Stability Deviation Method in the Artificial Island proceedings) and seeks input on:

• Whether short-circuit projects differ sufficiently from stability or flow-based needs to justify continued use of DFAX.
• If DFAX fails cost causation here, what replacement methodology would allocate costs roughly commensurate with benefits (e.g., proportional contribution to fault current, similar to concepts in Order No. 2023 for generator interconnection short-circuit upgrades).

Initial comments are due approximately 90 days from issuance (early June 2026), with replies 60 days later.

Implications and Next Steps

The March 2026 order marks substantial progress toward equitable cost sharing in PJM, particularly by removing the de minimis exemption and triggering long-overdue billing corrections. However, the short-circuit question remains pivotal, as many RTEP projects (including Bergen-Linden Corridor and Sewaren) were driven primarily by fault-duty concerns.

Pterra’s prior work, including detailed affidavits submitted in the original Con Edison complaint (Docket No. EL15-18-000) analyzing the flawed application of DFAX to the Bergen-Linden Corridor and Sewaren projects and the 2021 affidavit in the Neptune/LIPA proceeding (EL21-39-000) demonstrating an alternative nodal DFAX approach that eliminated netting and the de minimis threshold, contributed meaningfully to this process. Through rigorous engineering analysis, clear quantification of disproportionate allocations, and objective comparisons of methodologies, Pterra’s contributions helped illuminate the practical shortcomings of the existing DFAX framework in meeting cost causation principles. This body of work provided FERC with concrete, data-driven insight into how the de minimis exemption produced irrational and discriminatory outcomes. Ultimately, these efforts provided guidance to the Commission in its decision to eliminate the de minimis threshold, direct retroactive recalculations and refunds, and open the current paper hearing to explore more appropriate cost allocation approaches for short-circuit reliability needs.