Regional transmission operator PJM Interconnection, L.L.C. recently changed its operating manual to require that generating entities experiencing direct or indirect changes in ownership or control notify PJM of such changes immediately. While the new requirements, effective as of June 1, may add to the paperwork burden for generation transactions in PJM, the preparation and delivery of the required notices might not add sufficient additional time. However, the new requirements raise a number of questions, including whether there are consequences for noncompliance.

In a little noticed but potentially important change to its operating manual, PJM Interconnection, L.L.C. (PJM), the regional transmission operator (RTO) that manages and controls transmission and interconnection facilities and electric markets in the Mid-Atlantic and Great Lakes region, has imposed new requirements that generating entities that are subject to certain direct or indirect changes in ownership or control deliver nearly immediate notice of those changes to PJM. This change to the PJM manual[1] became effective on June 1, 2018. The new requirements were not included in PJM’s open access transmission tariff or other tariffs subject to regulation by, and prior public notice to, the Federal Energy Regulatory Commission (FERC). As a result, there has been nearly no publicity about this change in requirements.

Generation in PJM

PJM’s RTO service territory includes almost 179,000 MW of installed generating capacity,[2] not including other generating capacity that can be imported into PJM from adjacent US utility service territories and other RTOs. PJM has more than 1,000 members, and more than 65 million people live within its RTO service territory.[3] Notably, within PJM’s RTO service territory, there are almost 1,400 generating assets.[4] Numerous direct and indirect ownership transactions take place every year. In FERC’s 2016–17 docketing year, more than 180 merger, acquisition, and control-disposition applications filed with FERC under Section 203 of the Federal Power Act (FPA) concerned PJM generating assets or entities affiliated with PJM generating assets.[5] As many generator merger, acquisition, and control transactions take place every year involving facilities and entities that are exempt from FERC Section 203 review, it is likely that many transactions in addition to those 180 applications involving PJM generators or their upstream owners took place.

PJM’s New Requirements

PJM’s new requirements apply to any generator that is subject to a direct or indirect 10% or greater voting ownership interest change, or that is subject to a sale of physical generation assets; all such transactions are known as “change-in-ownership transactions.” A generating entity that is (a) a customer under a PJM generator interconnection agreement or (b) a PJM member generation owner must report a change-in-ownership transaction to PJM both (1) promptly, when an FPA Section 203 application is filed with FERC, by serving the application on PJM’s general counsel and the general counsel to PJM’s external independent market monitor, and (2) whether or not a Section 203 application is filed, within 10 days following the execution of binding transaction documents, by notice to PJM’s client management department.

Notwithstanding any notice or consent provisions of a generator’s agreements with PJM (such as interconnection or membership documents), PJM’s new requirements provide that any “updates” to those documents must be provided to PJM within 10 days after the closing of the change-in-ownership transaction.

The generator’s notice to PJM (and its independent market monitor) must include

  • an enumeration of all of the generator’s agreements with PJM;
  • the generation facility’s identifying information and maximum electrical size (in MW), and a listing of all of the generating facility’s owners and PJM identifying numbers;
  • a description of the change-in-ownership transaction, including the identification of the parties;
  • the identification of the entity that markets the generator’s electrical output within PJM;
  • a listing of any generators that are affiliated with the new ownership, together with a simplified organization chart; and
  • in the case of asset-level transactions, certain additional corporate information in the form of a letter to PJM’s president.

Risks and Open Questions

PJM’s new requirements largely duplicate other PJM notification requirements, and PJM has not indicated whether some perceived absence of notice or other discrete communications failure prompted the change. Since the new requirements are imposed through PJM’s manual, and not PJM’s tariffs, PJM was not required to docket the changes with FERC, and there has been no notice in the Federal Register nor any FERC proceeding concerning the new requirements.

All of the data to be supplied to PJM is likely already in PJM’s possession or is available to PJM from FERC filing records. These new requirements do add to the paperwork burden for generation transactions in PJM, but in some cases the preparation and delivery of the required notices might not require extensive additional time. Regardless of the degree of compliance burden, the new requirements raise a number of questions that the new PJM manual provisions do not answer, including the following:

  • What are the consequences to a generator of its inadvertent failure to make a timely notice filing with PJM, particularly since the new requirements do not reference any particular delinquency-related provision of any other PJM document? In particular, if PJM learns of a generator transaction that is subject to the new requirements, but the generator has not timely filed the required notice with PJM, will PJM submit a hostile filing or noncompliance report to FERC (which—among other risks—could significantly delay FERC approval of a Section 203 application, if one were required in a particular transaction)?
  • If a generator provides information to PJM about a transaction that is not yet consummated, will PJM treat the information as nonpublic?
  • If documents governing a change-in-ownership transaction are executed but are subject to postexecution conditions precedent to consummation, at what point does the 10-day notice period start?
  • If some of the information now required (such as the identity of a contracted power marketing entity) is not determined at the time the notice is due, is there a requirement to supplement the notice to PJM when such information becomes known?

During FERC’s 2016–17 docketing year, PJM formally intervened in dozens of FPA Section 203 proceedings concerning change-in-ownership transactions that would appear to be covered by the new requirements. Therefore it would appear that PJM does not lack information about change-in-ownership transactions affecting PJM’s generators. And since the new requirements supplement, and do not replace, existing PJM notice and assignment requirements, PJM still has the authority to impose tariff provisions on transactions of contractual concern to PJM (for example, by requiring compliance with interconnection assignment provisions). Ultimately, PJM has not explained why these new requirements have been adopted if this transaction information is already otherwise available to PJM.

Regardless, generators, investors, and their counsel should familiarize themselves with the new requirements and, given the confusion the requirements may cause and the clear duplication of existing requirements that they impose, affected parties should not hesitate to contact PJM with requests for clarification.