FERC Grants Partial Rehearing of PJM’s Agreement Implementing Pseudo-Tied Resources

On April 23, 2019 FERC granted in part and denied in part a rehearing request (“Rehearing Order”) filed by American Municipal Power Inc. (“AMP”) of FERC’s February 5, 2018 order (“February 5 Order”) accepting PJM Interconnection, L.L.C.’s (“PJM”) revisions to amend its Open Access Transmission Tariff (“Tariff”) and Amended and Restated Operating Agreement (“Operating Agreement”) to improve the process for adding a pseudo-tied resource into the PJM region. As part of this process, PJM proposed to incorporate two pro forma pseudo-tie agreements and a pro forma system modification reimbursement agreement (“Reimbursement Agreement”). In the Rehearing Order, FERC granted AMP’s request on rehearing that the indemnification provisions of the Reimbursement Agreement should be consistent with related provisions in the pro forma pseudo-tie agreements. FERC denied rehearing with respect to the compensation provision and the suspension and termination provisions in the pro forma pseudo-tie agreements.

On August 11, 2017, as amended on December 7, 2017, PJM proposed two pro forma pseudo-tie agreements and a Reimbursement Agreement in order for PJM to improve the process for accommodating pseudo-tied resources in the PJM Region. The pro forma pseudo-tie agreements provide for the implementation and operation of pseudo-ties whether or not PJM and the Native Balancing Authority have a joint operating agreement. The Reimbursement Agreement addresses cost recovery for conducting studies and system modification in order to implement a pseudo-tie. In its February 5 Order, FERC accepted the proposed revisions and the pro forma pseudo-tie agreements and Reimbursement Agreement, and required PJM to submit a compliance filing (see February 13, 2018 edition of the WER).

On March 7, 2018, AMP filed its rehearing request, arguing that FERC erred in accepting PJM’s proposed compensation provision in the pro forma pseudo-tie agreements, which provides that the pseudo-tied entity, not PJM, will compensate the Native Balancing Authority for costs to implement the pseudo-tied resource. AMP also challenged FERC’s acceptance of PJM’s proposed suspension and termination provisions contained in the pro forma pseudo-tie agreements. AMP argued that these provisions are “impermissibly vague,” because the term “suspension” is not defined and the agreements lack detail on when PJM may exercise its “sole discretion” to terminate a pseudo-tie. Lastly, AMP took issue with the lack of consistency between the indemnification provision in the Reimbursement Agreement as compared to the indemnification provision in the pro forma pseudo-tie agreements, which gives a pseudo-tied entity to limit its indemnification obligation to only the “extent permitted by state law.” AMP requested that the same limitation be included in the Reimbursement Agreement.

FERC granted rehearing of AMP’s request to modify the indemnification language in the Reimbursement Agreement. FERC agreed with AMP that PJM should include in the same optional limitation that is provided for in the pro forma pseudo-tie agreements for consistency purposes. Accordingly, FERC directed PJM to submit Tariff revisions, within 30 days of this order, to add revised language to the Reimbursement Agreement. In addition, FERC denied rehearing of AMP’s claims with regards to the Native Balancing Authority compensation provision and the suspension and termination provisions in the pro forma pseudo-tie agreements. Regarding the compensation provision, FERC affirmed its finding in the February 5 Order that the pro forma pseudo-tie agreements do not authorize a Native Balancing Authority to recover FERC-jurisdictional pseudo-tie implementation costs. FERC anticipated that the pseudo-tied entity and the Native Balancing Authority will likely establish implementation cost recovery via an additional, separate agreement or by filing a non-conforming pseudo-tie agreement with additional provisions. Additionally, FERC denied rehearing of AMP’s challenge to the specificity of the suspension and termination provisions in the pro forma pseudo-tie agreements, finding these provisions to be sufficiently detailed and therefore, just and reasonable.

A copy of FERC’s order is available here.