PJM Ordered to Revise Tariff on Auction Revenue Allocation Process
On July 11, 2012, FERC issued an order granting the complaint of FirstEnergy Solutions Corp. (“FirstEnergy”) regarding the allocation of Auction Revenue Rights (“ARRs”) under the PJM Interconnection, L.L.C.’s (“PJM”) Open Access Transmission Tariff (“Tariff”). FirstEnergy’s complaint focused on the allocation of monthly ARRs for transmission capacity that becomes available over the course of the year, but was limited in the annual allocation due to modeled outages. FERC agreed with FirstEnergy that ARRs that become available in monthly auctions should be allocated to Load Serving Entities (“LSEs”) whose requests over those paths were pro-rated in the annual auction, instead of auctioning off the capacity in the monthly Financial Transmission Rights (“FTR”) auctions.
PJM’s current Tariff provides that ARRs and FTRs awarded through the FTR auction must be “simultaneously feasible.” PJM uses power flow models to determine if the rights requested during a planning year can be accommodated on a simultaneous basis. If requested ARRs are deemed “infeasible” during a particular stage of the PJM annual ARR allocation process, they are pro-rated. In its complaint, FirstEnergy argued that it is unjust and unreasonable for LSEs with pro-rated ARR requests to be denied monthly ARRs for transmission facilities which were modeled as out of service but return to service. FirstEnergy noted in its complaint that transmission capability not modeled for the annual auction that becomes available due to newly-constructed or upgraded transmission capability is distributed on a monthly basis through “Residual ARRs.” PJM argued in its answer to FirstEnergy’s complaint that increased allocation would divert congestion revenue that could otherwise be used for underfunding of FTRs. PJM also requested additional time to consider the issues present in the complaint.
FERC concluded that PJM’s existing Tariff was unjust and unreasonable and unduly discriminatory because it fails to allocate ARRs from return to service of existing transmission capability to parties with historic rights and varies allocation of ARRs depending on whether it results from the return to service of existing transmission capability or due to newly-constructed or upgraded transmission capability. FERC ordered PJM to revise its Tariff within 60 days of the date of its order so that ARRs associated with return to service of existing transmission capability will be allocated to LSEs with requests over those paths, consistent with the current Tariff procedures for upgraded or newly-constructed transmission capability.
A copy of FERC’s order is available here.