A PJM Interconnection LLC proposal to reform its financial transmission rights market is facing pushback at the Federal Energy Regulatory Commission.
PJM proposed the changes on Jan. 10 following a multiyear review of its financial transmission rights, or FTR, market in the wake of a $179 million default by the trading firm GreenHat Energy LLC in 2018.
The proposal, which received a majority of PJM stakeholders' support, largely reflected a report produced by London Economics International, a consulting firm hired to analyze whether the grid operator's FTR and auction revenue rights, or ARR, markets are achieving their fundamental purpose.
That purpose is to enable electricity buyers and other market participants to hedge against price volatility associated with congestion on stressed power lines.
London Economics estimated that PJM's FTR market generates approximately $523 million to $1.2 billion in annual benefits for consumers.
Consumer advocate, market monitor protests
PJM's Jan. 10 proposal contained several key reforms. Those included a proposal to expand the number of source/sink combinations permitted in PJM's ARR market, which allocates ARRs annually to load-serving entities. Holders of ARRs receive revenues from annual FTR auctions. ARRs can be traded only between affiliates after the annual ARR allocation and before the annual FTR auction.
However, a coalition of consumer advocates led by the Office of the People's Counsel for the District of Columbia argued that the package of reforms proposed by PJM ignores "a central recommendation" of the London Economics report by failing to address surplus charges.
The coalition noted that over the last five planning periods, monthly and long-term auction surpluses have totaled $455 million.
"Clearly, there is significant surplus value that is not being returned to load and leaving this critical design component unchanged undermines the equity principles necessary to make the ARR/FTR construct just and reasonable," the coalition argued in a Jan. 31 protest.
The group urged FERC to reject PJM's proposal without prejudice and direct the grid operator to file a new proposal consistent with its equity concerns.
During PJM's review of its FTR market, the Office of the People's Counsel for the District of Columbia offered an alternative proposal to allocate 100% of any auction surplus to ARR holders on a pro-rata basis at the end of planning periods. But that proposal fell just short of garnering the two-thirds majority support needed for a full vote by PJM's Markets and Reliability Committee.
PJM's Jan. 10 filing was also met with a Feb. 2 protest by Monitoring Analytics, the grid operator's independent monitor.
Monitoring Analytics noted that PJM's FTR results "vary significantly by zone," with some zones receiving "substantially more in offsets than their total congestion payments."
"While the amount of congestion that is returned to the load varies by planning period, PJM's ARR/FTR design has consistently failed to return the congestion revenues to the load that paid it," the market monitor argued.
Monitoring Analytics recommended that FERC institute a Section 206 proceeding under the Federal Power Act to consider multiple proposals for further reforms.
Industry support
But PJM's proposal also received support from the Energy Trading Institute, which argued the grid operator's proposed approach accurately reflects the reality of locational marginal electricity pricing.
"The [independent market monitor] believes the sole purpose of the ARR/FTR construct is limited to the mere returning of congestion to load," the Energy Trading Institute, an advocacy group backed by several trading firms, said. "This view stands in stark contrast to statutorily driven [FERC] initiatives and precedent."
An industry group including affiliates of Exelon Corp. and NextEra Energy Inc. also urged FERC to accept PJM's proposal.
"The commission should reject any alternative proposals introduced in this proceeding that would attempt to scrap the current FTR/ARR framework and replace it with a construct that directly allocates congestion surpluses to [load-serving entities]," the group argued. "Any such proposal would ignore the critical hedging function that FTRs provide and the commercial reality faced by load-serving entities that depend on such hedging to reduce costs."
