How PJM Interacts with the Federal Energy Regulatory Commission

Exploring-PJM-IconPJM is regulated by the Federal Energy Regulatory Commission, which is an independent agency with oversight of the interstate transmission of electricity, natural gas and oil.

The FERC also reviews proposals to build liquefied natural gas terminals and interstate natural gas pipelines as well as licensing hydropower projects. The Energy Policy Act of 2005 gave FERC additional responsibilities as outlined and updated in its Strategic Plan.

The PJM stakeholder process is designed to identify, review and make decisions about proposed revisions to PJM’s governing documents, processes, market designs and operations. The review standards under Sections 205 and 206 of the Federal Power Act affect how the FERC looks at revisions proposed by PJM.

Sections 205 and 206 cResponse to FERConcern the FERC’s authority over utility rates, terms and conditions for transmitting or selling electric energy in interstate commerce.

The FERC requires rates, terms and conditions must be “just and reasonable” and must be “not unduly discriminatory or preferential.”

Because PJM’s governing documents relate to the transmission and sale of electricity in interstate commerce, changes to its operating agreement, Open Access Transmission Tariff and the Reliability Assurance Agreement must be accepted by the FERC.

  • Section 205 requires that the proposer of a revision demonstrate that the proposed rate, term or condition is just and reasonable.
  • Section 206 requires that the proposer of a revision meet a higher burden of proof, however. It must demonstrate not only that the proposed change is just and reasonable, but also that the existing provisions are unjust and unreasonable.

In PJM’s governance process, the Members Committee has Section 205 filing authority over the PJM Operating Agreement, while the PJM Board has Section 205 filing authority over the Reliability Assurance Agreement and the Open Access Transmission Tariff (with the exception of certain provisions that are under the exclusive control of the PJM transmission owners).

If, for example, the Members Committee votes against a proposed revision to the operating agreement, the PJM Board may decide that it is necessary to proceed and file the proposed revision at the FERC.

If PJM does want to move forward at the FERC, it must file under Section 206 (instead of under Section 205) and prove that the existing operating agreement language at issue is unjust and unreasonable, and that the proposed language is just and reasonable.