The Federal Energy Regulatory Commission signals options to modernize PJM Interconnection's governance structure, adjusting filing-rights allocations.

Ari Peskoe is director of Harvard Law School's Electricity Law Initiative.

The surge in data-center energy demand and related power price increases has put the spotlight on PJM Interconnection processes that can culminate in market-rule changes or reinforce the status quo. FERC's jurisdiction over transmission governance allows it to modify filing-rights allocations and adjust PJM's nominating committee. Additionally, utilities have no authority to impose conditions on any filing rights transfer over the regional planning protocol.

**FERC's Legal Foundation**

FERC's oversight of regional transmission organization governance is rooted in its duty to define, detect and eliminate unduly discriminatory conduct. The commission has connected governance of multi-utility transmission agreements to undue discrimination since at least the 1970s. In 1987, the D.C. Circuit summarized that FERC's prior regulation of regional transmission governance was a "proper exercise of its power to prevent undue discrimination."

PJM's current governance was designed to address undue discrimination by utilities. In 1996, FERC recognized that its open-access transmission mandate—intended to counter utilities' incentives to stymie competition—would be of limited value if utilities continued to operate transmission themselves. It therefore encouraged utilities to cede control over their transmission networks to system operators with no financial stake in the markets.

To receive FERC approval to operate transmission, newly created RTOs had to demonstrate that their governance would prevent "control, and appearance of control, of decision-making by any class of participants or individual companies." Based on this Independence Rule, FERC rejected the utilities' initial PJM proposals because they provided utilities with "ultimate control" over regional decisions.

The RTO Independence Rule is a remedy for undue discrimination. The D.C. Circuit recently confirmed that FERC must enforce RTO independence. Governance reforms anchored to the RTO independence rule should not be legally controversial.

**Unjust and Unreasonable Rates**

Governance reforms might also be justified if tied to evidence about unjust and unreasonable wholesale or transmission rates. At the FERC technical conference in July on PJM governance reform, parties blamed slow decision-making processes for high prices. FERC might conclude that reforms designed to break through bureaucratic delays at PJM could address unjust and unreasonable rates.

Reforms that boost the scale and pace of infrastructure development might also remedy unjust and unreasonable rates. PJM has been plagued by a surge in demand, which is driving up prices. Meeting this surge requires state support.

State engagement, consultation and decision-making authority do not threaten PJM's independence, contrary to claims by some market participants. The seminal orders on RTO independence and the codified RTO Independence Rule apply to market participants, not state regulators or policymakers. PJM implements the Independence Rule through its Bylaws, Operating Agreement and personnel policies that likewise prohibit connections between its employees and officers and market participants. FERC should use this proceeding to reiterate that state engagement, consultation and decision-making authority are consistent with the Federal Power Act's collaborative federalism framework.

**Filing Rights**

Filing rights are at the heart of regional governance. FERC may order changes to existing arrangements, including providing new filing privileges to states or removing privileges enjoyed by non-utility entities.

The D.C. Circuit established one prohibition on FERC's regulation of filing rights. In *Atlantic City Electric*, the court held that while an owner or operator of property providing jurisdictional service may voluntarily share its right with other entities or cede it entirely, FERC may not order an owner or operator to surrender its filing right.

The Members Committee's filing privileges are central to ongoing discussions at FERC. PJM has proposed to assume the Members Committee's filing privileges over energy market and transmission planning rules. Utilities unanimously endorse this approach. The Organization of PJM States Inc. (OPSI) and the region's governors support it on condition that states gain certain filing privileges.

Removing the Members Committee's filing privileges does not trigger the D.C. Circuit's prohibition on filing rights. The Members Committee is not itself a "public utility" under federal law because it does not engage in FERC-jurisdictional transactions and therefore has no rights to surrender.

States similarly have no "rights" to file tariff amendments, but FERC could require PJM to file state-approved rule changes. When states act through PJM filings, they are not themselves filing under section 205 of the Federal Power Act.

Utilities arguing that FERC lacks authority to order PJM to grant state filing privileges are seeking to expand the D.C. Circuit's lone filing-rights prohibition. FERC itself reads *Atlantic City* narrowly. According to FERC's interpretation, nothing in the decision prevents it from conferring filing rights on additional parties over utility objections. Supplementing the utilities' rights over regional cost allocation or PJM's rights over capacity with new privileges for states would not force any party to surrender its rights, as *Atlantic City* prohibits.

FERC would face some legal risk if it ordered PJM or the utilities to provide filing privileges to states, given that utilities would likely litigate. Since *Atlantic City*, utilities have sought to enlarge their monopoly power by advancing novel theories about section 205.

Section 205 codifies the Federal Power Act's core consumer protection safeguards: requiring that rates be just and reasonable, mandating that utilities publish rates and charge only that rate, and empowering FERC to hold rate cases, suspend a new rate's effectiveness, and order refunds. FERC and federal courts have repeatedly rejected utilities' attempts to recast section 205 as a vehicle for their control over regional transmission.

Alternatively, FERC could approve a proposal filed by PJM to "voluntarily give up, by contract, some of its rate-filing freedom under section 205," as the D.C. Circuit put it in *Atlantic City*. PJM might adapt ISO New England's approach to provide states with filing privileges over resource adequacy.

State filing privileges in PJM would be enshrined in PJM's tariff and would supplement existing filing rights, leaving PJM's and the utilities' section 205 rights intact. Those two features address the objections a 1984 federal appeals court raised to state-compelled filings. In that case, a state commission acting under state law directed a utility to amend its FERC-regulated tariff. The court worried that such state orders would leave FERC choosing among competing state directives about a single transmission tariff, would allow state authority to reach a filed federal rate, and would displace the utility's own judgment about its rates. According to the court, section 205 "allows the utility the choice among various reasonable rate practices."

None of those consequences could follow from tariff-based state privileges. A properly structured tariff would specify how states may act and would not allow states to file competing proposals under their own sovereign power. The filed rate doctrine prevents states from regulating transmission tariffs, but it does not prevent FERC from approving tariff-based procedures for state engagement, consultation or decision-making.

Tariff-based state privileges would allow PJM and the utilities to continue filing under section 205 whatever they choose and whenever they choose. States' privileges could be conditioned on PJM or the utilities making their own concurrent section 205 filing. Concurrent filings are required for Midcontinent Independent System Operator state regulators and ISO-NE market participants acting through the jump-ball option to exercise their filing privileges. In these regions, a non-utility proposal reaches FERC alongside a utility's filing rather than instead of it. Structured that way, neither a voluntary concession by PJM nor a FERC mandate to add filing privileges would deprive anyone of the "choice" the court described.

**Board Nominating Process**

PJM's Operating Agreement empowers a committee consisting of one representative from each of the Members Committee's [text incomplete]

---

**Note:** The source text cuts off mid-sentence at the end. The final section on board nominating process is incomplete.