FERC Rules on Transmission Development Disputes in MISO and PJM, Discusses Right of First Refusal
On July 19, 2012, FERC issued several orders related to whether the governing agreements of the PJM Interconnection, LLC (“PJM”) and Midwest Independent Transmission System Operator, Inc. (“MISO”) include a right of first refusal (“ROFR”) for incumbent transmission owners to build and own new projects. FERC concluded that the MISO Transmission Owners Agreement does include a ROFR, and enforced that right to find that several disputed transmission projects were properly awarded, at least in part, to existing transmission owners. In contrast, the Commission found that the PJM Operating Agreement does not include a ROFR. However, FERC emphasized in each order that its decision was required by the language of the relevant agreements currently on file. FERC echoed its prior findings that certain federal ROFRs are unjust and unreasonable and should be removed on a prospective basis in upcoming Order No. 1000 compliance filings.
In both Pioneer Transmission, LLC v. Northern Indiana Service Co., and Midwest Indep. Transmission Sys. Operator, Inc. (“Pioneer”) and Xcel Energy Services Inc. v. American Transmission Co., LLC (“Xcel”) FERC found that MISO’s current Transmission Owners Agreement (“TOA”) includes a ROFR pursuant to which ownership and the responsibilities to construct new facilities that are connected between two or more owners’ facilities belong equally to each owner. In Pioneer, FERC relied on this language to hold that the right to build a proposed transmission line connecting the systems of NIPSCO and Duke Energy Indiana belonged to each of those owners equally, even though Pioneer Transmission LLC (a joint venture of Duke Energy and American Electric Power) claimed to have submitted a similar project to the MISO planning process. The Commission reached a similar conclusion in Xcel, finding that the same “share equally” provision of the MISO TOA required American Transmission Company (“ATC”) to give Xcel Energy a 50 percent interest in a transmission line connecting the two companies’ systems, notwithstanding ATC’s attempt to develop the entire line.
Even though FERC found that the MISO TOA includes a ROFR, and enforced that right in these two cases, FERC reiterated its dissatisfaction with ROFRs as a matter of policy, a position it laid out in Order No. 1000. But, while FERC ordered the elimination of the ROFR in Order No. 1000, it did so on a prospective basis upon FERC’s acceptance of the compliance filings due on October 11, 2012. As such, FERC concluded that the elimination of ROFRs under Order No. 1000 was not applicable in Pioneer or Xcel.
In contrast, in both Primary Power, LLC, and Central Transmission, LLC v. PJM Interconnection L.L.C., (“Central Transmission”), FERC analyzed the PJM Operating Agreement and determined that it did not include a ROFR. FERC affirmed its prior decisions that non-incumbent transmission developers in PJM were eligible to build certain “economic” transmission projects in the PJM Interconnection under PJM’s OATT and Operating Agreement.
Even though the PJM Operating Agreement does not contain a ROFR, in Primary Power, LLC v. PJM Interconnection, L.L.C., (“Primary Power II”), FERC held that Primary Power, LLC, failed to prove that PJM acted in an unduly discriminatory manner or deviated from PJM’s Operating Agreement when it selected “alternative projects” set forth by incumbent transmission owners over similar proposals submitted by Primary Power, LLC. FERC rejected Primary Power, LLC’s arguments that a de facto ROFR existed and reiterated that PJM’s Operating Agreement permits, but does not require, PJM to designate an entity other than an incumbent transmission owner to build a project in PJM’s Regional Plan. Furthermore, FERC stated that PJM’s Operating Agreement requires PJM to consider alternative proposals, and ultimately, those alternative proposals by incumbents were chosen because they were less expensive and more efficient. Thus, FERC concluded PJM’s decision was not unduly discriminatory. However, FERC did also note that some issues regarding PJM’s planning process would be more appropriately addressed in PJM’s Order No. 1000 compliance filing.