On September 8, 2017, FERC rejected an unexecuted amendment to an interconnection service agreement (“Agreement”), which PJM Interconnection, LLC (“PJM”) filed on behalf of Hudson Transmission Partners, LLC (“HTP”). The amended Agreement sought to allow HTP to convert 320 MW of Firm Transmission Withdrawal Rights to Non-Firm Transmission Withdrawal Rights—a conversion opposed by another party to the Agreement, Public Service Electric and Gas Company (“PSEG”), due to its alleged potential impact on PJM’s pending Regional Transmission Expansion Plan (“RTEP”) cost allocation proceedings.  Along with its rejection of the amended Agreement, FERC initiated a Federal Power Act (“FPA”) section 206 proceeding into whether the Agreement, and PSEG’s withholding of consent for the conversion, unjustly and unreasonably restrict HTP’s ability to convert its Firm Transmission Withdrawal Rights.

Under PJM’s Open Access Transmission Tariff (“OATT”), merchant transmission facility owners like HTP can elect from a variety of transmission rights including “transmission withdrawal rights” in lieu of other transmission rights.  Firm Transmission Withdrawal Rights enable the rights-holder to schedule energy and capacity withdrawals from the PJM system.  Non-Firm Transmission Withdrawal Rights enable the rights-holder the more limited service of scheduling energy on an as-available basis subject to curtailment (similar to Non-Firm Point-to-Point Transmission service).  The merchant transmission facility makes this election after PJM has determined, through its interconnection study process, the network upgrades and associated costs necessary to enable Firm- or Non-Firm Transmission Withdrawal Rights on PJM’s system.  The merchant transmission facility and PJM then enter into a three-party Agreement with the transmission owner interconnected with the merchant facility and PJM’s system—in this case, PSEG.

HTP is the owner of a 660 MW high voltage direct current merchant transmission facility connecting PJM and the New York Independent System Operator, Inc. via a 345 kV undersea cable. Under the current terms of the Agreement, HTP was granted 320 MW of Firm Transmission Withdrawal Rights and 353 MW of Non-Firm Transmission Withdrawal Rights at a PSEG-owned substation.  In a long-term contract expiring in 2033, HTP transferred its Firm Transmission Withdrawal Rights to its anchor customer, New York Power Authority.

Sometime following this transfer, HTP requested that PJM file an amended Agreement with FERC that would, among other things, reflect the transfer of these firm rights and to convert them to Non-Firm Transmission Withdrawal Rights.  PSEG withheld its consent for the conversion and protested PJM’s filing, relying on an Agreement clause purporting to allow amendments only with three-party approval.  PSEG argued that such a conversion would undercut cost allocation principles associated with the project and result in a more favorable rate as part of PJM’s pending RTEP cost allocation proceedings.  According to PSEG, HTP should have to terminate the Agreement, submit a new transmissions service request, and reenter the queue, to seek the Non-Firm Transmission Withdrawal Rights that it desires.

In its order, FERC rejected the unexecuted amended Agreement, finding that neither the Agreement nor PJM’s OATT required PJM to make such a filing under FPA section 205.  FERC agreed with PSEG that, in the absence of three-party consent, the Agreement itself only allows the requestor to file an FPA section 206 filing to make amendments.  The Commission then went on to note, however, that the Agreement’s strict requirement for three-party consent to allow the rights conversion, and PSEG’s withholding of that consent, may both be unjust and unreasonable in light of the facts.  Accordingly, FERC instituted a FPA section 206 proceeding to explore these concerns.

As FERC noted, the conversion would not lead to withdrawal increases or reliability problems, due to PJM’s continued control.  Moreover, HTP’s conversion, which calls for reduced service quality, would not affect payments for previously constructed transmission facilities because HTP had already fully paid for the network upgrades to facilitate Firm Transmission Withdrawal Rights.  FERC found that PSEG’s argument that HTP will unfairly avoid RTEP cost allocation was a challenge to the justness and reasonableness of PJM’s RTEP cost allocation (a concern reserved for separate FERC proceedings), not to whether HTP should be able to relinquish its Firm Transmission Withdrawal Rights.

A copy of FERC’s order can be found here.