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Retail Supplier Files Complaint Against PJM Over Uplift Charges, Seeks Refund

February 19, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Champion Energy Marketing LLC has filed a complaint at FERC against PJM regarding PJM's allocation of balancing operating reserves for January 2014.

"Champion, a retail supplier of electricity, supplied almost 100% of its load before the real time market in January 2014, yet still incurred more than $3.8 million in 'uplift' or Balancing Operating Reserve ('BOR') charges for the month, an increase of more than 2,336% from December 2013," Champion said.

"These charges were entirely outside of the market and therefore Champion had no ability to protect or hedge against them. Champion’s complaint is that the PJM Tariff provisions that allowed for these charges to be incurred and then allocated to the load are flawed, perpetuate fleet-wide resource performance problems, and as a result fail to ensure reliability in a cost-effective manner," Champion said.

"Unfortunately, Champion has been unable to discern from the settlement data how and why PJM incurred the costs that led to these charges as well as how the charges were calculated or allocated. Moreover, we are perplexed by how such charges could be assessed in the magnitude they were against Champion when the company essentially supplied its own customer demand position before the real-time market. Champion understands that January 2014 experienced extreme weather, but that fact does not explain the magnitude of the charges that were assessed against it or why, among other things, these charges were not allocated to the LMP, which would have more fairly spread the cost to non-performing or under-performing market participants, including those entities that were not fully supplied or hedged," Champion said.

Champion blasted PJM's lack of transparency regarding the causes of uplift, as PJM has only offered generalizations, with Champion specifically questioning uplift related to late January when PJM ostensibly had taken greater actions to prevent a recurrence of uplift after experiencing the polar vortex earlier in the month.

"What PJM has not done is detail the specific generators that failed to perform or who received the uplift payments and the choices made by generators and PJM in accessing those resources during this period," Champion said.

"Champion concludes that the PJM market design did not anticipate the extreme conditions discussed above and therefore PJM market rules are inadequate to properly allocate the cost of the actions taken by PJM during these extreme events," Champion said.

Champion also alleged that uplift payments were exacerbated by generator decisions designed to take advantage of the flawed market design.

"It seems to Champion that as a result of decisions by PJM, certain market participants may have taken advantage of the situation because generators knew that if they followed PJM dispatch instructions they were guaranteed to fully recover their costs of operation and PJM had to accept these 'market conditions," Champion said.

"The Tariff cannot operate to provide, at the expense of LSEs, unlimited make-whole payments to generators as well as off-system purchases from other ISOs or RTOs under circumstances where the magnitude of those payments is out of relation to the LMP, introduces extreme volatility and is completely unhedgeable, thereby devastating LSEs like Champion," Champion said.

Champion sought a refund in the amount of $3.1 million for the days Champion was long power, plus interest

"Champion did everything it was supposed to do to as a load serving entity during the month of January 2014. It followed all the rules, supplied its expected load through bilateral contracts as well as in the day-ahead market, and was almost 100% hedged for the month. The charges at issue here did not arise as a result of commercial risk taking by Champion. So the question before the Commission is whether, in circumstances like these, Champion should be penalized or held harmless for following all of the rules and supplying its load. Champion believes that the answer is emphatically the latter, both as a matter of policy and equity," Champion said.

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