On March 20, 2020, FERC issued an order accepting PJM Interconnection, L.L.C.’s (“PJM”) proposal as part of its Regional Transmission Expansion Plan (“RTEP”) to allow project developers to submit binding cost commitments on a voluntary basis, and to undertake a comparative review and analysis of these commitments in selecting transmission projects. FERC accepted PJM’s proposal over the objections of certain PJM transmission owners, and concluded that the proposal would assist PJM in selecting the most efficient and cost-effective transmission solutions in its RTEP while providing greater transparency into PJM’s evaluation process.

PJM’s proposal involves Schedule 6 of the PJM Operating Agreement, which describes the competitive proposal window process used to develop the RTEP. The previously effective provisions of Schedule 6 required transmission project developers submitting a proposed project to include sufficient detail for PJM to analyze the proposed cost, as well as to demonstrate other advantages including any binding cost commitments the developer voluntarily submitted. After the proposal window closes, PJM reviews the submissions to determine which are the most efficient or cost-effective, and presents those meriting further consideration in the RTEP to the Transmission Expansion Advisory Committee.

PJM proposed Tariff language revising this process to clarify that submitting a binding cost commitment is voluntary, but that any proposals including a binding cost commitment should define exactly which elements of the proposal are binding. This could include describing what elements of the proposal are cost-capped (e.g., construction costs, total return on equity, and/or capital structure) and any exceptions, contingencies, or conditions on the caps, in addition to the developer’s right to seek changes under certain circumstances. PJM also clarified that it would evaluate competing proposals by assessing the quality and effectiveness of a binding cost commitment or non-binding cost estimate against the resulting, comparative risk to be borne by ratepayers.

In accepting PJM’s proposal, FERC rejected arguments from certain PJM transmission owners that the proposal lacked specificity as to PJM’s comparative evaluation process. In so doing, FERC pointed to PJM’s commitment to include implementation details for its comparative analysis in its business practice manuals. FERC also rejected arguments that PJM’s proposal would indirectly dictate what transmission owners could or could not include in future Federal Power Act Section 205 filings to recover the costs of their projects, concluding that developers ultimately determined the bidding characteristics of their proposals, including any voluntary binding cost commitment. FERC similarly rejected arguments that the proposal would effectively permit PJM to take on FERC’s role in determining just and reasonable rates. FERC distinguished PJM’s role in reviewing and selecting the most efficient or cost-effective transmission proposals with FERC’s role in reviewing the justness and reasonableness of the resulting rates. Finally, FERC rejected arguments that PJM’s process in adopting the proposal was procedurally deficient.

FERC’s March 20 order is available here.