The Federal Energy Regulatory Commission possesses broad legal authority to approve or order changes to PJM Interconnection's governance structure, including reallocating who can file market-rule changes and adjusting the grid operator's board nominating process, according to a new legal analysis published by Ari Peskoe, director of Harvard Law School's Electricity Law Initiative. The analysis concludes that FERC's jurisdiction over transmission governance permits it to modify filing-rights allocations and that utilities lack authority to impose conditions on any transfer of filing rights over regional planning protocols. Peskoe's assessment comes as surging data-center energy demand and related power price increases have focused attention on PJM processes that can result in market-rule changes or reinforce existing arrangements.
The analysis details how FERC's oversight of regional transmission organization governance stems from its duty to define, detect, and eliminate unduly discriminatory conduct, a connection the agency has maintained since at least the 1970s. In 1996, FERC recognized that its open-access transmission mandate aimed at countering utilities' incentives to stymie competition would hold limited value if utilities continued operating transmission themselves, leading the commission to encourage utilities to transfer control to system operators with no financial stake in markets. To receive approval for operating transmission, FERC required newly created RTOs to demonstrate that their governance would prevent "control, and appearance of control, of decision-making by any class of participants" or individual companies—a standard known as the Independence Rule. PJM's Members Committee currently holds filing privileges that PJM has proposed taking for itself, a move utilities unanimously endorse and that the region's governors support on condition that states gain certain filing privileges.
According to Peskoe, removing the Members Committee's filing privileges doesn't violate the D.C. Circuit's prohibition on filing rights because the committee isn't itself a "public utility" under federal law and doesn't engage in FERC-jurisdictional transactions. "The Members Committee is not itself a 'public utility' under federal law because it does not engage in FERC-jurisdictional transactions," the analysis states. Peskoe argues that states similarly have no inherent "rights" to file tariff amendments, but FERC could require PJM to file state-approved rule changes—and when states act through PJM filings, they aren't themselves filing under section 205 of the Federal Power Act. The analysis notes that utilities seeking to argue FERC lacks this authority are attempting to expand the D.C. Circuit's single filing-rights prohibition beyond its narrow scope.
The analysis explains that governance reforms might be justified if tied to evidence about unjust and unreasonable wholesale or transmission rates—for instance, parties at FERC's July technical conference on PJM governance reform blamed slow decision-making processes for high prices, suggesting reforms aimed at breaking through bureaucratic obstacles could cure unreasonable rates. Reforms boosting the scale and pace of infrastructure development might also remedy unjust rates, particularly as PJM has been plagued by surging demand driving up prices. Peskoe emphasizes that state engagement, consultation, and decision-making authority don't threaten PJM's independence, despite claims by Constellation, because the seminal orders on RTO independence and the codified Independence Rule explicitly concern market participants, not state regulators or policymakers. The analysis warns that market participants' legal arguments against state involvement threaten to disrupt productive arrangements in other RTOs and recommends FERC use this proceeding to reiterate that state engagement is consistent with the Federal Power Act's collaborative federalism framework.