FERC Commissioner Clements Issues Statement on PJM Interconnection

WASHINGTON, March 24 -- The U.S. Department of Energy's Federal Energy Regulatory Commission issued the following statement by Commissioner Allison Clements on a decision (Docket No. ER23-442-000) involving PJM Interconnection LLC:

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I concur with the result of today's Order because the unexecuted Interconnection Service Agreement (ISA) filed by PJM (the Madison ISA), is consistent with PJM's pro forma ISA previously accepted by the Commission.[1] Given the facts currently known by the Commission and absent additional process, the ISA as filed therefore warrants acceptance. I write separately, however, because in my view the Commission should have instituted a paper hearing in order to determine whether the Professional Liability Insurance provision contained in PJM's pro forma ISA is unjust and unreasonable, and to assess what, if any, modifications may be warranted.

PJM contends that its Professional Liability Insurance provision is "a prudent measure to protect PJM Members against potential claims from errors or omissions in the furnishing of professional services related to the design and construction of new transmission facilities and Interconnection Facilities."[2] That may be true. In Madison County Solar's view, however, the provision is unreasonable in circumstances such as this, where the Interconnected Entity has not elected the Option to Build and only has minor construction responsibilities with respect to its own Customer Facility.[3] Madison argues that any benefits associated with the insurance requirement are far outweighed by its costs.[4] Madison contends that it has encountered difficulty securing insurance because "potential insurers have difficulty understanding the scope of the potential issues that would be covered by such a policy that are not covered by other required insurance policies."[5] And PJM's provision is in no way tailored regarding the scope of construction activities contemplated. It provides that for all generation resources greater than 20 MW that have any construction responsibilities, however small, the Interconnected Entity shall maintain insurance in the amount of five million dollars.[6] In circumstances such as this, where the customer has not exercised the Option to Build and has only limited construction responsibilities with regard to its own facility, is PJM's provision reasonable, or overkill?

In my view, this is an eminently answerable question, but the Commission does not and cannot know the answer based on the information currently available. Madison County has provided information suggesting that the Professional Liability Insurance provision may be unjust and unreasonable, but whether or not it is so depends on the answers to questions such as:

What are the benefits of requiring Professional Liability Insurance in these circumstances? Are foreseeable claims covered by other types of insurance?

Is a $5 million coverage amount reasonably tailored to PJM's potential risks?

Can Madison substantiate its claims that insurance is difficult or even impossible to obtain under these circumstances, and provide more detail on why it is having difficulty obtaining insurance? For example, is obtaining insurance coverage more difficult where an Interconnected Entity has not elected the Option to Build, and if so, why?

Have other projects in similar circumstances obtained insurance, and if so, at what cost?

Further, I find it highly relevant that the Commission has never opined on the merits of PJM's approach, which notably differs from the pro forma agreement set forth in Order No. 2003. As Madison highlights, the Commission accepted PJM's compliance filing justifying its Professional Liability Insurance provision without any discussion or analysis.[7] Holding a paper hearing sua sponte pursuant to section 206 of the Federal Power Act would afford the Commission an opportunity to wrestle with the merits of whether PJM's Professional Liability Insurance is just and reasonable, following through on its duties with regard to reasoned decisionmaking under the Administrative Procedure Act.

I concur in the result of today's Order because I recognize that the decision whether to hold a hearing in these circumstances is discretionary. Absent evidence more conclusively suggesting that PJM's Professional Liability Insurance provision is unjust and reasonable, the Commission is free to put the onus on market participants such as Madison to bring a complaint under section 206 that supplies adequate evidence and answers the questions above. But in my view, the Commission should more frequently exercise its authority under section 206 of the Federal Power Act to address relatively straightforward problems, like this one, as they are presented. Solving them may provide relief in the instant case and more broadly. I believe it is especially important to exercise section 206 authority when circumstances present a potential power imbalance between established incumbents and new entrants, such that the relevant issues may otherwise go unaddressed.

For the foregoing reasons, I respectfully concur.

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Footnotes:

[1] See PJM Interconnection, L.L.C., 108 FERC Sect. 61,025, at PP 1, 22 (2004) (accepting PJM's pro forma ISA, but requiring a compliance filing to justify its Professional Liability Insurance provisions and contemplating the potential for revisions to PJM's proposed pro forma ISA in order to conform with the requirements of Order No. 2003-A); PJM Interconnection, L.L.C., 110 FERC Sect. 61,099, at P 6 (2005) (accepting PJM's compliance filing).

[2] PJM Answer at 7.

[3] Madison Protest at 3, 6.

[4] Id. at 7.

[5] Id. at 6-7.

[6] See PJM, Intra-PJM Tariffs, OATT, ATTACHMENT O.A2.13.1 Required Coverages For Generation (2.0.0).

[7] See PJM Interconnection, L.L.C., 110 FERC Sect. 61,099, at P 6 (2005).

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Original text here: https://www.ferc.gov/news-events/news/commissioner-clement-concurring-result-pjm-interconnection-llc