FERC's cheapest route to PJM capacity runs through governance

Anyone underwriting a PJM transmission project is underwriting, whether the model says so or not, the body that sits closest to the decision about which projects get built. In a piece published September 23 in Utility Dive, Ari Peskoe, director of Harvard Law School's Electricity Law Initiative, argues that the Federal Energy Regulatory Commission already has the legal tools to change how that body is composed and who gets to speak for it.

The pressure behind the argument is load: surging data-center energy demand and the power price increases that have come with it have put a spotlight on PJM Interconnection's internal processes, the ones that can culminate in market-rule changes and the ones that can reinforce the status quo instead.

Peskoe's conclusions are narrow, and for anyone with capital committed in the region they are more useful than another general critique of RTO decision-making. FERC's jurisdiction over transmission governance, he writes, allows it to modify filing-rights allocations and to adjust PJM's nominating committee, and he adds a second conclusion that narrows the utilities' room: they have no authority to impose conditions on any filing-rights transfer over the regional planning protocol.

The authority he describes is old, and that is the point: FERC's oversight of RTO governance grows out of its duty to define, detect and eliminate unduly discriminatory conduct, and the commission tied the governance of multi-utility transmission agreements to undue discrimination at least as far back as the 1970s, a reading the D.C. Circuit confirmed in 1987 when it described that earlier regulation as a proper exercise of FERC's power to prevent undue discrimination.

PJM's current governance was designed as the remedy for exactly that problem: in 1996, FERC recognized that its open-access transmission mandate would be of limited value if utilities kept operating transmission themselves, so it encouraged them to cede control of their networks to system operators with no financial stake in the markets. Approval came with the Independence Rule attached: a new RTO had to show that its governance would prevent control, and the appearance of control, of decision-making by any class of participants or by an individual company. FERC rejected the original PJM utilities' proposals on that basis, finding they gave the utilities ultimate control over regional decisions.

That history is what makes governance reform the cheaper route and a rate case the slower one: the D.C. Circuit recently confirmed that FERC must enforce RTO independence, and Peskoe argues that reforms anchored to the Independence Rule should not be legally controversial. The alternative, tying reforms to evidence that wholesale or transmission rates are unjust and unreasonable, needs a record; at the July FERC technical conference on PJM governance, parties blamed slow decision-making for high prices, but blame is not evidence, and assembling enough of it to carry a rate-based remedy is a multi-year project likely to finish after the load it was meant to serve has already shown up.

Which route the commission takes also settles who absorbs the cost of waiting: if slow decision-making is what stands between a load forecast and a transmission award, the governance question is a cost-of-capital question for every developer bidding into the region, and the July conference aired that complaint in the open.

Transmission developers price approval risk into bids, and the regional planning protocol is where that risk gets made: filing rights over the protocol decide who can put amendments to it in front of FERC, which suggests a reallocation is not a procedural footnote for the projects already selected through it. Grid permission is the underwriting asset, and queue positions and interconnection contracts price before the electrons; the PJM question refines that position rather than contradicting it, because permission is only as durable as the process that grants it, and the composition of that process is what Peskoe says FERC can change.

The state-level moves already in motion show how much of the value sits in the process rather than in the steel: Pennsylvania has a curtailment rewrite and a standing cost-of-capital docket that will decide which PJM load gets financed, and West Virginia is still working the route and need questions for NextEra's PJM-selected line on a first-quarter clock. A study this publication covered in September estimated that roughly a dozen Eastern Interconnection projects could cut retail rates and strengthen reliability, with approvals standing between the study and the wires.

FERC can keep treating governance as a discrimination question with a remedy attached—the position it has held since the 1970s and one the D.C. Circuit restated in 1987—without having to declare PJM's market broken. The near-term question is whether a filing-rights transfer or a nominating-committee change becomes the vehicle, because either one would move the decision about where wires go one step further from the utilities that built the network.

Peskoe's piece is an argument, not a docket, and the coverage does not say FERC has decided to do anything with it. But the asymmetry between the two legal routes belongs in a model: a developer holding a PJM position cannot price a precedent that has already been through the appellate courts the same way it prices an evidentiary hearing that has not started. That gap is where the next tranche of transmission capital in the region gets underwritten, because the reform path that needs a commission vote is shorter than the one that needs a record.