On February 16, the Federal Energy Regulatory Commission (FERC) issued an order accepting an executed State Agreement Approach Study Agreement (Study Agreement) between PJM Interconnection, L.L.C. (PJM) and the New Jersey Board of Public Utilities (NJ BPU), pursuant to which PJM will solicit project proposals to expand or upgrade its transmission system to provide for the deliverability of 7,500 MW of offshore wind into New Jersey by 2035.  New Jersey is the first state in the PJM region to use the State Agreement Approach, a supplementary transmission planning and cost allocation mechanism in PJM’s Operating Agreement designed to meet states’ public policy needs.

Because two other coastal states in the PJM region, Maryland and Virginia, have adopted offshore wind targets as well, the Study Agreement may be precedent-setting, as utility commissions in those states work towards implementing their respective targets.

Under the State Agreement Approach, one or more state governmental entities in the PJM region authorized by their respective states may voluntarily agree to be responsible for the allocation of all costs of a proposed transmission expansion or enhancement that addresses state public policy requirements.  Because the State Agreement Approach is designed to be a flexible mechanism, there is no pro forma service agreement.  In its filing of the Study Agreement, PJM explained that the agreement is being used as a first step toward identifying a transmission project tailored to New Jersey’s public policy goals.

The Study Agreement requires PJM to use its existing tariff process to convene a competitive proposal window to solicit transmission solutions, and provides notice that PJM will study and plan for New Jersey’s public policy goals in the 2020-2021 Regional Transmission Expansion Plan cycle.  Among other studies, PJM may perform analyses similar to a system impact or facilities study to assess the deliverability of offshore wind capacity at specific interconnection points.

The Study Agreement also establishes key dates and milestones, including: (1) PJM will endeavor to post preliminary recommendations from project proposals for the NJ BPU to consider by October 15, 2021; (2) PJM will endeavor to provide final transmission project recommendations to the NJ BPU on or about February 15, 2022, but in no event later than September 1, 2022; and (3) no later than 70 days after receiving PJM’s final recommendations, the NJ BPU will enter into a term sheet to be filed with FERC.  The term sheet will identify the project(s) selected by the NJ BPU, if any, as well as the designated developer(s) and cost allocation methods for such project(s).

Although PJM will make recommendations to the NJ BPU regarding cost-effective transmission enhancements or expansions for inclusion in the Regional Transmission Expansion Plan pursuant to the Study Agreement,, the NJ BPU is not required to select a project proposal submitted as part of the competitive proposal process.  The State Agreement Approach allows the NJ BPU to select different proposed transmission enhancements or expansions for inclusion in the Regional Transmission Expansion Plan.  As such, in the February 16 order, FERC acknowledged that the selection of any project, developer or cost allocation method may be the subject of subsequent filings by PJM.

A copy of the February 16 order can be found here.