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In a March 6, 2026 order (the Order), the Federal Energy Regulatory Commission (FERC or the Commission) reshaped how PJM Interconnection, L.L.C. (PJM) allocates transmission project costs. Consol. Edison Co. of New York, Inc. et al., 194 FERC ¶ 61,179 (2026) (Docket Nos. EL15-18-005, EL 15-67-005, EL 17-68-003, ER 17-950-006, EL21-39, ER22-1606, and ER22-1606). The Commission eliminated PJM’s long‑standing de minimis threshold exemption—a rule that arguably shielded large load zones from paying for certain transmission upgrades despite significant usage—after the U.S. Court of Appeals for the District of Columbia (the Court) found the exemption violated cost‑causation principles. Consol. Edison Co. of New York, Inc. v. FERC, 45 F.4th 265 (D.C. Cir. 2022). As a result, FERC opened the door to an estimated $1 billion in refunds (including interest) and re-billing stretching back more than a decade.

Procedural History

In response to aging infrastructure, PJM years ago authorized a series of upgrades to facilities owned by Public Service Electric and Gas Company (PSE&G), the dominant electricity provider in northern New Jersey. In 2014, PJM assigned $1.3 billion in project costs via two rounds of cost allocations. FERC approved both rounds through myriad orders.

Several New York-based utilities, including the Long Island Power Authority (LIPA), Neptune Regional Transmission System, LLC (Neptune), Consolidated Edison Company of New York, Inc. (ConEd), Linden VFT, LLC, Hudson Transmission Partners, LLC, and the New York Power Authority (collectively, the New York Entities) petitioned for judicial review of these orders.

On August 9, 2022, the Court remanded the Commission’s orders. On March 6, 2026, FERC issued its “Order on Remand, Rejecting Tariff Proposal and Settlement, Directing a Compliance Filing, and Establishing Paper Hearing Procedures.”

Background

PJM Transmission Cost Allocations

PJM uses a hybrid method to allocate to load the transmission facilities costs driven by reliability needs. Specifically, PJM applies a different cost allocation method if the transmission facility is a Regional Facility, a Necessary Lower Voltage Facility, or a Lower Voltage Facility. For Regional Facilities and Necessary Lower Voltage Facilities that improve grid reliability (not stability), PJM allocates half the costs on a load-ratio share basis and allocates the other half to transmission zones based on the solution-based distribution-factor analysis (DFAX) method. All the costs of Lower Voltage Facilities addressing reliability needs (not stability needs) are allocated using the DFAX method.

DFAX

In a nutshell, DFAX is a flow-based method that assigns costs based on how much each utility uses a certain facility over time. The DFAX method models how electricity will flow across a new transmission facility during peak grid use, and allocates costs proportionally, based on the projected use of the facility by utilities in each PJM grid zone. PJM distributes the DFAX costs of regional plan projects over several years to account for utilities’ changing use of the grid.

De minimis Threshold Exemption from DFAX

The de minimis threshold exemption adds a critical qualification to the DFAX calculation process. The rationale is that zones reaping very small benefits from a facility should not be assigned any DFAX costs. To that end, zones with a distribution factor below 1% are deemed to have no flows over the facility and thus are assigned no costs. Because distribution factors measure a zone’s use of a facility relative to its total load, the de minimis exemption depends on the size of the zone, not on the zone’s share of the facility’s total flow.

Use of DFAX in Other Calculations

Short-Circuit Reliability Violations. The DFAX method is also used to allocate project costs addressing short-circuit violations. PJM assigns either half or all the project costs addressing stability violations using the Stability Deviation Method.

Netting. For zones with many delivery points, PJM “nets” the flows to each delivery point to calculate the total flow. Electricity can flow in both positive and negative directions. PJM assigns a negative value to flows in the negative direction, which decreases a zone’s total flow. New York-based entities, Neptune and LIPA, also challenged the netting provisions of the DFAX method.

What FERC Decided

The Order has several immediate and long‑term ripple effects on PJM transmission owners, merchant transmission facilities, and load‑serving entities. In this Order, FERC:

  • Eliminated the de minimis threshold exemption entirely and directed PJM to revise Schedule 12 of the PJM Tariff accordingly. FERC concluded that the exemption is unjust, unreasonable, and unduly discriminatory because it routinely shifted costs away from large zones and onto smaller ones, even when larger zones used the facility more. The de minimis threshold exempts zones from bearing any costs based on their load size – a feature unrelated to the burdens they impose or the benefits they receive from any individual facility. The Order explains, “[b]ecause the PJM methodology multiplies the DFAX value by the peak load of the zone,” “the de minimis threshold exemption disproportionately favors larger over smaller zones.”
  • Rejected both the PJM Transmission Owner Host Zone Proposal and the 2025 Settlement Proposal, each of which attempted to preserve a modified version of the de minimis threshold exemption. FERC found these proposals suffered from the same legal defects the Court identified above.
  • Established a new paper hearing procedure to determine whether the solution‑based DFAX method is appropriate for allocating costs of short‑circuit reliability projects, an issue the Court remanded for further explanation.
  • Affirmed the use of netting (PJM’s practice of offsetting positive and negative energy flows in calculating total energy flow caused by a zone) under the DFAX method, rejecting the Neptune/LIPA challenge on that issue.The Commission found that – unlike the de minimis threshold exemption from DFAX – the solutions-based DFAX method is a “just and reasonable” way to determine zonal cost allocations for netting purposes.
  • Ordered PJM Transmission Owners to recalculate cost allocations back to June 18, 2015, the date the Commission first committed legal error by denying the ConEd complaint. PJM must issue corrected bills, including interest.

Why This Matters

This ruling reforms how PJM assigns transmission upgrade costs:

  • Large zones will no longer be exempted from cost responsibility simply because their DFAX values fall below 1% when multiplied by their large peak loads.
  • Smaller zones and merchant transmission facilities may see significant reductions in their cost burdens. However, as Indicated PJM Transmission Owners and East Kentucky Power Cooperative, Inc., note in their requests for rehearing, eliminating the de minimis threshold would increase cost shifts to smaller zones because without this threshold, smaller zones will be left to bear the costs of projects built in larger zones that smaller zones make relatively little use of.
  • Refunds and surcharges stemming from the retroactive recalculation could be substantial (estimated at more than $1 billion including interest) and will likely generate follow‑on disputes.
  • The upcoming paper hearing on short‑circuit projects could lead to further revisions to PJM’s cost allocation framework.

For companies with PJM‑related transmission cost exposure, this order may materially affect both historical and future charges.

Looking Ahead

Since the Order, PJM, the Illinois Commerce Commission, the Indicated PJM Transmission Owners, East Kentucky Power Cooperative, Inc., the New York Entities, and LIPA/Neptune have each filed requests for rehearing and/or clarification of the Order. More recently, PJM, LIPA/Neptune, the New York Entities, and PSE&G have filed answers and motions to leave to answer. The next major development will come from the paper hearing record on short‑circuit projects, which could prompt additional changes to Schedule 12 of the PJM Tariff. In the meantime, entities should review their historical cost allocations since 2015 and assess how the elimination of the de minimis threshold may alter their financial position.