UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION American Electric Power Service Corporation, ) Complainant ) v. ) Docket No. EL19-18-000 PJM Interconnection, L.L.C., ) Respondent ) MOTION FOR LEAVE TO ANSWER AND ANSWER OF PJM INTERCONNECTION, L.L.C. Pursuant to Rules 212 and 213 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission ( Commission ), 1 PJM Interconnection, L.L.C. ( PJM ) submits this Motion for Leave to Answer ( Motion ) and Answer ( Answer ) in response to specific protests and comments 2 that were submitted in response to the complaint 3 in this proceeding. In this Answer, PJM corrects or clarifies certain statements concerning the transfer of title from the Interconnection Customer ( IC ) 4 to the Interconnected Transmission Owner ( ITO ) of Interconnection Facilities constructed by the IC. 5 1 18 C.F.R. 385.212, 385.213 (2018). 2 Protest of EDF Renewables, Inc., E.ON Climate & Renewables North America, LLC, Enel Green Power North America, Inc., and Renewable Energy Systems Americas Inc., Docket No. EL19-18-000 (Dec. 19, 2018) ( Generation Developers Protest ); Comments of Duke Energy Corporation, Docket No. EL19-18- 000 (Dec. 19, 2018) ( Duke Comments ); Initial Comments of FirstEnergy Service Company, Docket No. EL19-18-000 (Dec. 19, 2018) ( FirstEnergy Comments ). 3 American Elec. Power Serv. Corp. v. PJM Interconnection, L.L.C., Complaint of American Electric Power Service Corporation, Docket No. EL19-18-000 (Nov. 19, 2018) ( Complaint ). 4 Capitalized terms not otherwise defined herein have the meaning set forth in PJM s pro forma Interconnection Construction Service Agreement ( ICSA ), Appendix 1. The ICSA is contained in PJM Open Access Transmission Tariff ( Tariff ), Attachment P. 5 See ICSA, Appendix 2, section 5.5, Transfer of Title to Certain Facilities Constructed by Interconnection Customer ( Section 5.5 ) (describing the processes and procedures whereby the IC and ITO effect the transfer, from the IC to the ITO, of title to Transmission Owner Interconnection Facilities built by the IC).
I. MOTION FOR LEAVE TO ANSWER The Commission s rules provide that a party may respond to protests where the decisional authority permits the response for good cause shown. 6 The Commission frequently has accepted responses to protests when doing so will ensure a more accurate and complete record or will assist the Commission in its deliberative process by correcting errors and clarifying the issues. 7 As demonstrated below, all of these criteria are met. Therefore, PJM respectfully requests that the Commission grant its Motion because the Answer will help clarify the record and contribute to an understanding of the issues. II. ANSWER A. Acceptance by Interconnected Transmission Owner of Facilities Constructed by Interconnection Customer is a Prerequisite for Transfer of Title. Generation Developers point to an erroneous statement in the Complaint 8 regarding ITO acceptance of Interconnection Facilities constructed by the IC. 9 To clarify, nothing in Section 5.5 would allow the ITO to refuse to take title to the Interconnection Facilities at that stage of the process simply because of the site location or site 6 See 18 C.F.R. 385.213(a)(2). 7 See, e.g., PJM Interconnection, L.L.C., 139 FERC 61,165, at P 24 (2012) (accepting answers to a protest because they have provided information that assisted [the Commission] in [its] decision-making process ); PJM Interconnection, L.L.C., 104 FERC 61,031, at P 10 (2003) (accepting answer because it will not delay the proceeding, will assist the Commission in understanding the issues raised, and will [e]nsure a complete record upon which the Commission may act ). 8 See Complaint at 32 ( Based on a fact specific context, AEPSC understands that it is PJM s position that Section 5.5 of the ICSA allows an AEP PJM TO to refuse to take title to what otherwise would be TO Interconnection Facilities on grounds that the site on which such facilities are located is unacceptable to the PJM TO. ). 9 Generation Developers Protest at 9 10. 2
characteristics. By the time of title transfer under Section 5.5, the IC has already constructed the Interconnection Facilities, and the ITO has already accepted the Interconnection Facilities. 10 Therefore, it is factually incorrect to suggest that the ITO could reject the Interconnection Facilities at the title transfer stage on grounds that the site on which such facilities are located is unacceptable to the [ITO]. On the other hand, it is factually correct that if the prerequisite of ITO acceptance of the Interconnection Facilities under Section 3.10 has not yet occurred, then the ITO would not yet be expected to take title to the Interconnection Facilities under Section 5.5. Simply put, the ITO cannot be forced to take ownership of IC-constructed facilities that do not comply with the Applicable Technical Requirements and Standards of the ITO, as set forth in the ICSA. If, upon inspection, certain site conditions or facility characteristics do not satisfy Good Utility Practice or do not substantially comply with Applicable Standards, then the IC is responsible for appropriate mitigation and correction of defects. 11 Upon appropriate mitigation and correction of defects, the IC shall obtain the ITO s acceptance of the corrections 12 and confirmation in writing to the IC and PJM that the Interconnection Facilities are acceptable for energization. 13 Upon successful energization, the ITO will accept the Interconnection Facilities under Section 3.10, which will satisfy the 10 See ICSA, Appendix 2, section 3.10, Interconnected Transmission Owner s Acceptance of Facilities Constructed by Interconnection Customer ( Section 3.10 ). 11 See ICSA, Appendix 2, section 3.8, Inspection and Testing of Completed Facilities; see also ICSA, Appendix 2, section 3.8.4, Notification and Correction of Defects. 12 Under ICSA, Appendix 2, section 3.8.4.1 such acceptance shall not be unreasonably delayed, withheld or conditioned. 13 See ICSA, Appendix 2, section 3.8.5, Notification of Results; see also ICSA, Appendix 2, section 3.9, Energization of Completed Facilities. 3
prerequisite for title transfer under Section 5.5. Therefore, in sum, at the title transfer stage of Section 5.5, the ITO has no Tariff basis for rejecting the Interconnection Facilities on grounds that the site on which such facilities are located is unacceptable to the [ITO], and transfer of title to the Interconnection Facilities is expected in accordance with the terms of Section 5.5. This complaint proceeding, however, does not set forth any facts related to a postconstruction transfer or refusal to complete a transfer. While AEP does not identify any specific project in its Complaint, the gravamen of AEP s Complaint involves posttransfer indemnification. While not explicitly called out by AEP, there is a central issue that underlies its proposed language, 14 and that issue is the pre-approval of the interconnection substation site. Order No. 2003 15 and the Standard Large Generator Interconnection Agreement ( LGIA ) 16 do not directly address this topic, in part because the Commission clearly envisioned a cooperative process because both the IC and ITO will have their facilities interconnecting into the substation. Because the interconnection substation generally will ultimately be owned and operated by the ITO as part of the integrated transmission system, the LGIA is clear that the interconnection substation must be constructed to ITO (and PJM) specifications, 17 which presumably would include 14 See Complaint, Attachment A. 15 Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, FERC Stats. & Regs. 31,146 (2003) ( Order No. 2003 ), order on reh g, Order No. 2003-A, FERC Stats. & Regs. 31,160 (2004) ( Order No. 2003-A ), order on reh g, Order No. 2003-B, FERC Stats. & Regs. 31,171 (2004), order on reh g, Order No. 2003-C, FERC Stats. & Regs. 31,190 (2005) (Order No. 2003-C), aff d sub nom. Nat l Ass n of Regulatory Util. Comm rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007), cert. denied, 552 U.S. 1230 (2008). 16 See Order No. 2003-A, Appendix B, Appendix 6. 17 See e.g. LGIA, article 5.2(1) ( [IC] shall engineer, procure equipment, and construct [ITO] Interconnection Facilities... using Good Utility Practice and using standards and specifications provided in advance by Transmission Provider. ). 4
specifications regarding site selection and location as they pertain to the Commissionjurisdictional facilities. In its processing of hundreds of interconnection requests each year, PJM submits that most interconnections proceed with a cooperative process for selecting the site for interconnection substations, and disputes regarding the site selection are extremely rare. The time for resolving any such disputes, however, is prior to the execution of the Interconnection Service Agreement ( ISA ) 18 and ICSA, not after construction at the time of acceptance or title transfer. Moreover, in states where a certificate of public convenience and necessity or siting approval is required, the IC already has secured the necessary state-jurisdictional siting approvals before construction commences. Therefore, the site location and characteristics generally have been reviewed and vetted in the relevant state proceedings prior to the start of construction. Presumably, the ITO would have participated, or had the ability to participate, in those state proceedings, and would have raised any issues of concern to the ITO. Thus, no language is needed in PJM s pro forma ISA or ICSA to address the issue of interconnection substation site selection, and any concerns regarding a refusal by the ITO to accept title at the time of construction completion due to site selection are unwarranted and unsupported. The Commission should simply require PJM to submit its language as proposed in its answer to the Complaint 19 in a compliance filing, which language in PJM s view adequately addresses the issues raised by AEP. 18 The ISA is contained in Tariff, Attachment O. 19 See Answer of PJM Interconnection, L.L.C., Docket No. EL19-18-000 at Attachment A (Dec. 19, 2018). 5
B. Upon Transfer of Title from Interconnection Customer to Interconnected Transmission Owner, Risk of Loss or Damages to the Interconnection Facilities also must Transfer to Interconnected Transmission Owner as the New Owner of the Facilities. Duke claims [t]he language in the PJM ICSA contains a sentence in Section 5.5 that suggests that the IC s liability ceases after title to the facilities has been transferred to the [ITO]. 20 Similarly, FirstEnergy claims [S]ection 5.5 of PJM s ICSA contains language that terminates indemnification once title is transferred from the [IC] to the [ITO]. 21 These claims are incorrect. Duke and FirstEnergy are improperly conflating the separate concepts of risk of loss and indemnification. Contractual indemnity is an important tool that allows the parties to contractually allocate certain specified risks among the parties. Generally, such allocation is to the party best positioned to manage the risk. Indemnity clauses are generally focused on claims, as evidenced by the Commission s pro forma clause. 22 Risk of loss refers to which party is financially responsible for the loss or damage to goods or facilities, irrespective of the cause. Risk of loss is important in contracts involving the transfer of goods/facilities because the risk of loss may transfer at a different time than ownership/title. Risk of loss is commonly implicated in contracts involving (i) the delivery of goods or (ii) the transfer of control over goods or facilities separate from the transfer of ownership/title. The sentence of the ICSA to which Duke and FirstEnergy refer reads as follows: Prior to such transfer to the [ITO] of title to the Transmission Owner Interconnection 20 Duke Comments at 2. 21 FirstEnergy Comments at 2. 22 See LGIA, article 5.2(7); see also Answer of PJM Interconnection, L.L.C., Docket No. EL19-18-000 at Attachment A (Dec. 19, 2018). 6
Facilities built by the [IC], the risk of loss or damages to, or in connection with, such facilities shall remain with the [IC]. 23 A plain reading of the sentence makes clear that the sentence does not contradict the indemnity provisions of ICSA, Appendix 2, section 12, and the sentence does not limit IC indemnification as it pertains to the Option to Build provisions of ICSA, Appendix 2, section 3.2.3. The sentence simply conveys the fundamental concept that until transfer of title to the facilities has been completed, the IC continues to bear the risk of loss 24 from whatever might befall those facilities, including acts of nature/war/terrorism. Under the ICSA s Option to Build provisions, the IC would design, procure, construct and install all or any portion of the Transmission Owner Interconnection Facilities. 25 Prior to the transfer of those facilities from the IC to the ITO, the risk of property loss or damages to the facilities remains with the IC, and the IC is responsible for managing those risks. Also prior to the transfer of those facilities, beginning at the time of ICSA execution, the IC as a Constructing Entity incurs indemnity obligations pursuant to ICSA, Appendix 2, sections 12.1, 12.2, 12.3, and 12.4. Under those indemnity obligations, depending on the circumstances, the IC may be responsible for 23 See Section 5.5. This sentence has existed in PJM s Commission-accepted pro forma Tariff since 2002 (see Old Dominion Elec. Coop. v. PJM Interconnection, L.L.C., 99 FERC 61,189 (2002)). 24 Risk of loss is [i]n insurance law, the danger or hazard of a loss of the property insured and in commercial sales contracts as between buyer and seller is governed by U.C.C. 2-509 (e.g., financial responsibility for damage or destruction of property when transferred between seller and buyer). Black s Law Dictionary 1328 (6th ed. 1990) (emphasis added). 25 ICSA, Appendix 2, section 3.2.3.1. 7
indemnifying and holding the ITO harmless from Loss. 26 Those indemnity obligations do not end at the time of title transfer, but instead carry through and will also apply while the ITO owns and operates the facilities. As indicated above, prior to title transfer, the IC would be responsible for managing the risk of property loss or damages to the facilities. Then, upon completion of title transfer, the ITO would be responsible for prudent risk management as it pertains to the facilities because, quite simply, the ITO would be the new owner of the facilities. After transfer, the ITO would be responsible for the operation and maintenance of the transferred facilities, as well as for the risk management of those facilities. The ITO would be expected to manage the risk of loss in a manner similar to how it manages risks for other facilities that it owns, using various techniques and tools including insurance. None of this limits the indemnification obligation of the IC as currently reflected in the ICSA or as clarified by PJM s language proposed in its Answer. 27 PJM notes that if risk of loss were assigned back to the IC after title transfer, it would effectively make the IC liable for the ITO s failure to properly operate or maintain the interconnection substation after ownership transfer, as well as for acts of nature/war/terrorism or any other extraordinary event beyond the control of the parties. Simply put, assigning the risk of loss back to the IC would make it absolutely liable for any cost associated with the subject facilities, including those costs caused by the ITO s 26 Loss is defined in ICSA, Appendix 2, section 12.1 as any and all loss, liability, damage, cost or expense to third parties, including damage and liability for bodily injury to or death of persons, or damage to property of persons (including reasonable attorneys fees and expenses, litigation costs, consultant fees, investigation fees, sums paid in settlements of claims, penalties or fines imposed under Applicable Laws and Regulations, and any such fees and expenses incurred in enforcing this indemnity or collecting any sums due hereunder). 27 See Answer of PJM Interconnection, L.L.C., Docket No. EL19-18-000 at Attachment A (Dec. 19, 2018). 8
negligence or intentional misconduct. The Commission should reject requests to assign the risk of loss back to the IC after the transfer of the ownership of the facilities. III. CONCLUSION PJM respectfully requests that the Commission grant the Motion and accept the foregoing Answer, which corrects errors and ensures a more accurate and complete record in this proceeding. Respectfully submitted, By: /s/ Alejandro Bautista Crai Glazer Vice President Federal Government Policy PJM Interconnection, L.L.C. 1200 G Street, N.W, Suite 600 Washington, D.C. 20005 (202) 423-4743 craig.glazer@pjm.com Alejandro Bautista Counsel PJM Interconnection, L.L.C. 2750 Monroe Blvd Audubon, PA 19403-2497 (610) 635-3447 alejandro.bautista@pjm.com Dated: January 3, 2019 9
CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing documents upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Audubon, PA, this 3rd day of January, 2019. /s/ Alejandro Bautista Alejandro Bautista Attorney for PJM Interconnection, L.L.C. 10