By Ted Caddell and Rich Heidorn Jr.

The U.S. Department of Justice is investigating the interconnection process in PJM’s MAAC sub-region as part of its anti-trust review of Exelon’s $6.8 billion takeover of Pepco Holdings Inc.

PJM officials said last week they had received a request for documents regarding “each proposed generating facility or planned upgrade to an existing facility (300 MW and above) that filed a request with PJM to interconnect in the MAAC sub-region of PJM in the last 10 years.”

The request came just five days after the Federal Energy Regulatory Commission approved the acquisition, without discussion or conditions, at its Nov. 20 meeting (EC14-96).

The Justice Department appears to be investigating concerns previously raised by PJM’s Market Monitor, which said transmission owners may have a conflict of interest in conducting interconnection studies on competitors’ generation.

The request covers PJM and all members involved in the interconnection process. “If you are a transmission owner or generator owner in the MACC sub-region involved in generator interconnection queue requests 300 MW and above in the last 10 years, then you are an affected member,” Dave Anders, PJM director of stakeholder affairs, wrote in an email to members.

Of the more than 1,100 projects submitted in the last 10 years, about 245 of them are 300 MW or above and about 118 are in MAAC. The department wants those documents from all parties by Dec. 16.

“We’re just sending them all of our file cabinets,” joked Steve Herling, PJM vice president for planning, when asked about the request during the Planning Committee meeting last week.

Section 7 Inquiry

The Justice Department’s notice doesn’t detail why it is seeking the documents. The demand letter notes that it is seeking the documents “in the course of an antitrust investigation to determine whether there is, has been or may be a violation of Section 7 of the Clayton Act … by conduct, activities or proposed action” of the acquisition of Pepco by Exelon.

Section 7 prohibits a merger if “the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly.”

Exelon spokeswoman Judy Rader said the company has already provided the department with documents in connection with what she called “the DOJ’s review of our proposed merger, not a separate antitrust investigation.”

Interconnection Process

As in non-RTO regions, PJM’s transmission owners conduct the studies that determine what developers will need to spend to connect their generators to the grid without causing overloads or other reliability problems. PJM manages the queue process.

“The process is complex and time-consuming as a result of the nature of the required analyses. The cost, time and uncertainty associated with interconnecting to the grid may create barriers to entry for potential entrants,” the Independent Market Monitor noted in the State of the Market report for the third quarter of 2014. “The queue contains a substantial number of projects that are not likely to be built. These projects may create barriers to entry for projects that would otherwise be completed by taking up queue positions, increasing interconnection costs and creating uncertainty.”

PJM Assistant General Counsel Steve Pincus said PJM received a data request for Exelon’s acquisition of Constellation Energy. That deal closed in 2012.

This is the first time Pincus said he was aware of the department taking interest in the interconnection process.

FERC enforcement staff has investigated interconnection processes in other regions, such as the Southeast. There, independent generators complained that vertically integrated utilities outside of RTOs were using the process to thwart competition by delaying studies and requiring excessive spending on transmission upgrades.

“We think that our process, with the RTO’s independence, addresses those issues that existed in the past,” Pincus said.

IMM Still Has Concerns

Market Monitor Joe Bowring declined to comment yesterday on the department’s inquiry. But the Monitor has been recommending since 2013 that PJM outsource interconnection studies to an independent party to avoid potential conflicts of interest.

“Currently, these studies are performed by incumbent transmission owners under PJM’s direction. This creates potential conflicts of interest, particularly when transmission owners are vertically integrated and the owner of transmission also owns generation,” the Monitor said in the third-quarter report.

“There is also a potential conflict of interest when the transmission owner evaluates the interconnection requirements of new generation which is part of the same company,” the report added.

The Monitor also recommended last year that PJM establish a review process to ensure that projects are removed from the queue if they are not viable, and that commercially viable projects advance in the queue ahead of projects that have failed to make progress.

“DOJ issues these kinds of requests from time to time in large merger cases to gather more information to complete its investigation,” Rader said. “Exelon and PHI have already provided the DOJ with our documents related to this request, and now the DOJ is asking for similar information from other parties. Exelon and PHI will continue to work cooperatively with the DOJ as it conducts its review of our proposed merger.”

Not Routine

But D.C. energy attorney Carolyn Elefant, who has 25 years of experience in federal regulatory matters, sees it as anything but routine.

“It is very unusual,” Elefant said yesterday. “It does seem unusual for the Department of Justice to go right to the transmission organization, and also I am not quite sure why the Department of Justice didn’t raise these issues” with FERC, she said.

Elefant represents the Mid Atlantic Renewable Energy Coalition, one of the interveners in the Exelon-Pepco acquisition docket, but doesn’t represent any of the parties covered by the Justice Department document demand.

“I think it is fair to say that the Department of Justice either has concerns about the acquisition or concerns about FERC’s resolution,” she said.

FERC Approval

In September, FERC issued a notice that it had given permission for staff to communicate with the department.

In its Nov. 20 order, FERC indicated it did not have any anticompetitive concerns with the Pepco acquisition. (See FERC Approves Exelon-Pepco Merger.)

Dismissing concerns of market power, possible rate climbs and suppressed competition, the commission approved the pending acquisition without discussion. Its written decision made clear it didn’t see any market issues with the acquisition, in part because Pepco holds only a negligible amount of generation. “While the commission is aware that Exelon will be a member with more assets after the merger, there is nothing in the record of this proceeding to indicate Exelon will have excessive influence over the stakeholder process or the independence of PJM.”

FERC did not immediately respond to a request for comment yesterday.