FERC issued an order rejecting part of PJM's financial transmission rights revenue adequacy proposal

In an order issued December 28, 2015, the Commission set for a technical conference two filings, submitted by PJM Interconnection, L.L.C. (PJM), proposing to minimize or eliminate certain alleged cost shifts, or cross-subsidies, between and among the holders of Auction Revenue Rights (ARR) and the holders of Financial Transmission Rights (FTR).

FERC found that PJM has met its section 206 burden, in part, by demonstrating that certain aspects of its existing ARR/FTR market design have been rendered unjust and unreasonable due, among other things, to the modeling assumptions adopted by PJM in recent years to address FTR revenue inadequacy. FERC agreed with PJM that these modeling revisions, while promoting revenue adequacy, have nonetheless resulted in unwarranted cost shifts between ARR holders and FTR holders

"However, we reject PJM’s proposed remedy, which PJM characterizes as a targeted reform intended to sidestep the underlying allocation dispute (and corresponding stakeholder impasse). Specifically, we reject PJM’s proposal to reduce Stage 1A infeasible ARRs by increasing its zonal load forecast growth rate. For the reasons discussed below, we find that PJM’s proposed escalation factor would trigger unnecessary transmission enhancements based on a model that relies on historical (outdated) source and sink points. Instead, to address infeasible Stage 1A ARRs, we require PJM to revise its tariff to remove the use of historical generation resources for requested ARRs in Stage 1A of the allocation process if those resources are no longer in service and develop a just and reasonable method of allocating Stage 1A ARRs based on source points that reflect actual system usage," FERC said

"We also reject, as unsupported, PJM’s proposal to eliminate the step by which negatively valued FTRs are netted against positively valued FTRs within an FTR holder’s portfolio. For the reasons discussed below, we find that PJM has not met its burden in establishing that PJM’s existing rules with respect to portfolio netting are unjust and unreasonable," FERC said

"Finally, we agree with the position advocated by PJM at the technical conference that FTR underfunding can be reduced by excluding from the FTR settlement process the real-time cost of a congestion imbalance, i.e., a cost that is not related to day-ahead congestion. Accordingly, we find that the inclusion of balancing congestion in the definition of FTRs is unjust and unreasonable as it contributes to the identified unjust and unreasonable cost shift. We therefore require PJM to allocate balancing congestion to real-time load," FERC said

See FERC's order for more details

Dockets EL16-6-001, ER16-121-000