Rejecting assertions that the PJM Interconnection LLC has not done enough to control costs, FERC on Dec. 22 authorized the grid operator to boost the stated rates it charges customers to cover its administrative expenses.
In doing so, FERC found that PJM has implemented cost-reduction measures and noted that the grid operator's tariff requires all amounts collected in excess of what is needed to cover actual expenses and maintain a reasonable reserve to be refunded.
When PJM in October asked FERC to sign off on its proposal, the grid operator explained that its current stated rates, which were set in 2011, are not allowing it to recover all of its costs and that the reserve it has been relying on to cover the shortfall is set to run out in the first few months of 2017.
One problem is that PJM's responsibilities and the demand for its administrative services have expanded significantly in recent years while load has grown at a far slower rate than previously projected, according to the grid operator. Another is that a separate rider charge through which PJM currently recovers its ongoing expenses for a second control center expires in 2018, the filing added.
PJM accordingly asked for permission to increase its existing $0.3349/MWh combined rates (the stated rate plus the rider charge) to a $0.36/MWh composite rate, effective for two years beginning Jan. 1, 2017, and to raise that rate 2.5% annually thereafter until it reaches $0.41/MWh in 2024.
FERC agreed, finding that PJM's proposal was "adequately justified."
Responding to concerns voiced by Public Citizen Inc. regarding cost control, the commission noted that PJM has taken multiple steps to lower expenses, including reducing the number of full-time equivalent contractors it employs, renegotiating telecommunications and utility contracts, expanding its vendor pool to increase competition, raising its employees' share of medical insurance costs and modifying its retirement benefits. The grid operator also justified an expected rise in employee compensation costs, showing that they will be "in line with industry averages," the commission said.
Moreover, FERC explained that PJM's finance committee, which is made up of stakeholder representatives that include consumer advocates, reviews the grid operator's expenses to ensure they are legitimate.
"We find the refund mechanism protects consumers against unjustified costs since the finance committee can reject unjustified expenditures which will result in a refund to ratepayers," FERC said. (FERC docket No. ER17-249)