On August 27, 2019, FERC affirmed its earlier rejection of PJM Interconnection, L.L.C.’s (“PJM’s”) proposal to, in certain circumstances, exempt incumbent transmission owners from executing a Designated Entity Agreement pursuant to the Regional Transmission Expansion Plan (“RTEP”) process set forth in Schedule 6 of its Operating Agreement, but not to exempt other transmission developers from this requirement (“August 27 Order”). The August 27 Order on rehearing and compliance affirmed FERC’s conclusion in a July 2018 order that incumbent and non-incumbent transmission owners are similarly situated, and that incumbent transmission owners would be given a competitive advantage in PJM’s RTEP process if they were exempted from executing the Designated Entity Agreement. The August 27 Order also accepted revisions to PJM’s Operating Agreement to provide a 60-day window for an incumbent transmission developer that PJM identified as a Designated Entity in its RTEP process to accept the designation.
PJM uses its RTEP process to identify needed transmission system upgrades and enhancements, and, via a competitive process, to select a solution to an identified transmission need. PJM generally analyzes all submitted proposals and selects one that is more efficient or cost-effective for purposes of cost allocation. The entity responsible for developing the selected transmission solution is called the Designated Entity.
For certain transmission system upgrades, e.g., upgrades to an incumbent transmission owner’s system or other projects located solely within one transmission owner’s zone, PJM must select the incumbent transmission owner as the Designated Entity to develop the transmission solution. (PJM terms these projects “Transmission Owner Designated Projects.”) For other project proposals whose costs will be regionally allocated, PJM identifies as the Designated Entity the developer that proposed the project, whether incumbent or non-incumbent. The Designated Entity is then required to execute a Designated Entity Agreement that sets out the rights and obligations of the Designated Entity and PJM throughout the transmission project’s construction. Before the project is placed into service, all Designated Entities that are not incumbent Transmission Owners are required to execute PJM’s Consolidated Transmission Owners Agreement (“CTOA”) in order to become a PJM Transmission Owner.
In what PJM described as an effort to streamline its RTEP process, PJM proposed in May 2018 to exempt the Designated Entity for a Transmission Owner Designated Project from executing a Designated Entity Agreement. FERC rejected PJM’s proposal, reasoning that while incumbent and non-incumbent transmission owners are similarly situated, the terms and conditions of the Designated Entity Agreement are more stringent compared to those in the CTOA, and that incumbent transmission owners therefore would be given competitive advantage in the RTEP project selection process if exempted from signing the Designated Entity Agreement.
FERC’s August 27 Order affirmed that conclusion. While parties requesting rehearing argued that incumbent and non-incumbent transmission owners are not similarly situated because only incumbent transmission owners are subject to the must-build and penalty provisions of the CTOA before the transmission project goes into service, FERC pointed to its conclusions in Order No. 1000 for the proposition that incumbent and non-incumbent transmission owners are in fact similarly situated for purposes of the transmission planning process. In addition, FERC rejected arguments that it erred in concluding that the Designated Entity Agreement is more stringent than the CTOA, pointing to specific financial security and project milestone requirements in the Designated Entity Agreement. FERC also reiterated its prior conclusion that, although exempting incumbent transmission owners from the requirement to execute a Designated Entity Agreement may further administrative efficiency, the undue discrimination that would result from such an exemption outweighed this benefit.
Finally, the August 27 Order accepted revisions to PJM’s Operating Agreement, submitted in compliance with the July 2018 order, to permit a transmission developer 60 days from receipt of an executable Designated Entity Agreement to accept its designation. FERC previously accepted this change in order to allow PJM more time to develop the agreement and the developer more time to create a development schedule with milestones and relevant project information.
FERC’s August 27 Order is available here.