On October 26, 2020, FERC issued an order on rehearing sustaining its previous order in which it accepted PJM Interconnection, L.L.C.’s (“PJM”) proposed revisions to the PJM Operating Agreement related to the Regional Transmission Expansion Plan (“RTEP”) that allow project developers to submit voluntary binding cost commitment proposals and that specify PJM’s methodology for considering the cost-effectiveness of such proposals. FERC disagreed with arguments raised by certain PJM transmission owners that the revisions would usurp FERC’s authority, that they lacked specificity, and that the revisions were not submitted in compliance with the procedural requirements of PJM’s Operating Agreement.

FERC’s October 2020 order follows a March 2020 order in which FERC accepted PJM’s proposed revisions to Schedule 6 of the PJM Operating Agreement, which describes the competitive proposal window process used to develop the RTEP (see March 31, 2020 edition of the WER). PJM’s proposed revisions clarified that submitting a binding cost commitment is voluntary, but that any proposals including a binding cost commitment should define which elements of the proposal are binding, and that PJM 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 proposed revisions, FERC disagreed with commenters on several points, including that: (i) the revisions would usurp FERC’s regulatory role and were contrary to the filed rate doctrine; (ii) the revisions lacked specificity as to PJM’s comparative evaluation process; and (iii) PJM did not submit the proposed changes to the PJM Board of Managers and thereby failed to comply with the requirements of the Operating Agreement. Several PJM transmission owners filed a joint request for rehearing on those three findings.

In its October 2020 order, FERC agreed with its previous determination that PJM’s revisions did not delegate FERC’s statutory ratemaking role to PJM or to PJM’s Independent Market Monitor, and further found that PJM would not have with the ability to determine whether the costs, ROE, and/or capital structure provided in binding cost commitment proposals would result in just and reasonable rates. With respect to the comparative evaluation process, FERC disagreed that it ignored arguments that PJM’s proposal lacked specificity. Instead, FERC found that PJM’s proposed process only deviated from the previous Operating Agreement language in that it added requirements that allow for the binding cost commitments and described the information needed to determine the binding nature of such commitment. Finally, FERC sustained its previous finding that public postings of the revisions on the PJM website gave the PJM Board of Managers the opportunity to provide comments, and therefore the revisions complied with the procedural requirements of the Operating Agreement.

FERC’s October 2020 order is available here.