By Rory D. Sweeney

VALLEY FORGE, Pa. — PJM stakeholders resoundingly endorsed LS Power’s controversial proposal to bring cost-containment measures into the RTO’s transmission planning process following more than two hours of debate before the Markets and Reliability Committee on Thursday.

The proposal will require PJM to evaluate cost commitments — including construction costs, return on equity and capital structure — in its analysis of competitive bids for transmission construction.

The approval came after a last-ditch attempt to delay a vote fell short.

TOs, who have been fighting the proposal for months, overwhelmingly opposed the measure, but stakeholders were won over by the chance to inject more competition and transparency into the process.

“We stand for markets. We stand for competition. We believe this … expands competition even further into the PJM processes,” said LS Power’s Sharon Segner, one of the main sponsors of the endorsed proposal.

Amendments

Thursday’s standoff was set in motion at January’s MRC, when stakeholders voted to defer a vote on an earlier LS Power proposal.

While LS Power had been heavily involved in special sessions of the Planning Committee that focused on the issue, the company had not sponsored a full-fledged proposal through PJM’s stakeholder process. It instead focused on attempting to change the RTO’s less comprehensive proposal. On the night before that proposal was set for a vote at the January MRC, LS Power submitted an alternative motion that differentiated between cost estimates and cost commitments and required PJM to weigh guarantees in its evaluation of bids.

When PJM’s proposal failed, TOs scrambled to bury the alternative LS Power proposal, eventually succeeding in having its vote deferred until the May MRC meeting with more special sessions scheduled in the interim for stakeholders to work toward consensus.

As its dispute with the TOs escalated, LS Power found allies among state consumer advocates, who pushed PJM into developing evaluation templates to standardize the bid process. TOs continued to fight the LS Power initiative and rallied behind a new RTO proposal that incorporated the templates but limited consideration of cost commitments to construction costs. LS Power also incorporated PJM’s templates but maintained its wider analysis of all cost guarantees.

At the Planning Committee meeting earlier this month, stakeholders endorsed PJM’s newest proposal, along with a recommendation that the MRC remand the issue back to the PC for further discussion. An effort to strip LS Power’s proposal of being the first voting item on the issue ultimately failed. (See Cost Containment Proposal Survives; Headed to MRC.)

In a final special session, just days before the MRC, LS Power teamed with Erik Heinle of the D.C. Office of the People’s Counsel to add several “friendly amendments” to the proposal. The revisions removed consideration of operations and maintenance cost guarantees but pushed for additional transparency and instructed PJM to work with its Independent Market Monitor to develop “comparative frameworks” for analyzing cost commitments versus cost estimates.

One would focus on construction costs, while the other would analyze ROE and capital structure commitments. While the friendly amendments were motioned and endorsed, opponents complained the repeated revisions subverted the stakeholder process.

“Once again, we haven’t followed the full process to vet the alternative motion,” Exelon’s David Weaver said.

LS Power attorney Mike Engleman of D.C. firm Engleman Fallon stridently refuted that argument, calling it “absolutely not true.”

The PC’s recommendation to remand the issue received substantial discussion at the MRC on Thursday, but supporters of the LS Power proposal opposed the delay, saying they feared it might never return for a vote.

“We are asking for a vote on the LS Power proposal, and we are strongly opposed to this notion of remanding this back to the PC,” Segner said. “Maybe it will get a vote at the PC, and maybe it won’t be based on how [the remand proposal was] drafted.”

“I think we have very different philosophical views, and I think we do need to vote” on the proposal, Heinle said. “Some things we’re not going to solve in the [stakeholder] process.”

Weaver said forcing a vote “will give an impression that the [stakeholder] process was a waste of time.”

“We do feel like that it’s not intractable,” he said, noting that TOs endorsed the templates. “But we do feel strongly that we do need time to understand impacts … so we can make sure that all stakeholders’ interests in cost containment are brought forward.”

Susan Bruce, who represents the PJM Industrial Customers Coalition, expressed “grave misgivings” with deferring the vote again, saying she felt the stakeholder process had worked. The conversation during the meeting was “very reasonable … but I worry,” she said.

“I’ve seen the conversations at the PC. I’ve read the letter,” she said, referring to a letter send by TOs to the Board of Managers requesting it order the MRC to not vote on the proposal. “With that lens, it’s a tough thing to be asked to defer this again.”

Several stakeholders, including the Monitor, urged members to reject the remand, which received a 1.95 sector-weighted vote, far short of the 3.335 threshold necessary for approval.

Following the vote, PJM’s Steve Herling said the proposals share many aspects and that while he “obviously … would have preferred” the RTO’s proposal, he was confident LS Power’s proposal is feasible.

“We believe we can implement their proposal, so at the end of the day, we’ll implement whatever is approved,” he said. “We have concerns, but we believe we can implement it.”

TOs’ Letter to Board

The sides then argued the legality of the LS Power proposal. Just a day before the meeting, 10 PJM TOs sent the board a letter arguing the proposal would infringe on the TOs’ rights under the Consolidated Transmission Owners Agreement, the Tariff and Section 205 of the Federal Power Act.

Proponents of the proposal disagreed, saying it only created a framework for PJM to evaluate bids that include cost guarantees, and that it doesn’t require TOs to include such guarantees in their bids. Heinle described the proposal as a “three-legged stool”: transparency through the evaluation templates; cost caps on ROE and capital structure; and comparative analysis informed by the Monitor.

“If incumbent transmission owners don’t choose to make a cost guarantee they don’t have to, but if they do, this puts some parameters around it,” Engleman said.

“At the end of the day, PJM looks at all relevant factors — cost just being one of them — and decides which is the right one to move forward with,” Segner explained.

American Municipal Power offered another friendly amendment, which added several small clarifications and confirmed that “neither PJM, the designated entity [winning bidder] nor any stakeholders are waiving any of their respective FPA Section 205 or 206 rights through this process.” An additional clarification on whether agreements between PJM and the winning bidder, known as designated entity agreements, would be filed at FERC was removed after PJM noted legal concerns. The remaining amendments were approved by LS Power and the proposal’s other sponsors.

PJM’s board did not respond to the TOs’ letter before the LS Power proposal was brought to a vote, where it received 92 votes in favor versus 17 votes opposed, or 3.79, well above the 3.335 threshold needed for approval.

The RTO must now work with the Monitor to develop the comparative frameworks, the first of which on construction costs is expected to be introduced in September and endorsed at the MRC on Dec. 6. It would be effective for long-term transmission proposal submission window, which runs from November to March. The second framework comparing ROE and capital structures is expected by May 1, 2019, to be effective for all submission windows going forward.