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Retail Supplier: PJM Uplift Mechanism "Grossly Imperfect"; PJM Cites Filed Rate Doctrine in Opposing Refunds

March 9, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

PJM has opposed a refund of uplift charges related to January 2014 sought by Champion Energy Marketing, citing the filed rate doctrine, while Verde Energy USA, Inc. called PJM's current application of uplift, "unjust and unreasonable, and is contrary to the Commission's cost causation principles."

PJM said that, "uplift is the inevitable result of organized wholesale electricity markets having limited ability to reflect in market prices the physical limitations and temporal constraints of resources in scheduling and dispatch."

"Thus, while wholesale electric markets generally ensure that the vast majority of such costs are reflected in LMP, the markets cannot efficiently price every cost incurred by PJM's system operators for every situation where generation is dispatched out of economic merit order," PJM said.

PJM said that granting Champion's request for a refund of uplift charges, "would usurp one of the fundamental tenets of wholesale electric market design and Commission legal precedent -- which is that Market Participants must abide by the filed rate in effect at the time."

PJM also dismissed Champion's allegations that uplift stemmed from generator behavior designed to exploit then-current PJM tariff provisions.

Verde Energy, however, said that PJM's uplift mechanism is contrary to recent FERC cost allocation orders (addressing RMR contracts in MISO).

"In its current form, the Tariff results in all LSEs bearing a share of the uplift charges regardless of whether the LSE has acted prudently and proactively to meet its power supply requirements. PJM makes no attempt to identify which parties contributed to PJM's need to dispatch additional resources for reliability, be they generators which failed to fulfill their commitment to provide power or the LSEs which could not arrange for the delivery of their power supply needs. Nor does PJM make an adequate effort to identify the parties that received the reliability benefits nor the magnitude of the benefits received. Rather, PJM allocates these reliability costs to all load based on the unsupported assumption that all physical load benefits equally," Verde noted.

Verde contrasted this approach with FERC's ruling on MISO RMR cost recovery:

"As the Commission ruled last month, an RTO cannot simply assume all LSEs within a region benefit from its actions and then assign the costs of those actions on a pro rata basis. In Midcontinent Indep. Sys. Operator, Inc., the Commission examined MISO's practice of assigning the costs of operating a generating unit designated as system support resource across all of the LSEs within any local balancing authority identified as receiving reliability benefits from the unit.1 The Commission held that the RTO had failed to support its assumption that every LSE within the identified regions necessarily received a reliability benefit and that those benefits were in proportion the LSE's pro rata share of the region's load. As a result, the Commission concluded that MISO's allocation methodology 'has not been shown to produce results that are just and reasonable and not unduly discriminatory' and required MISO to develop an alternative methodology. PJM's use of a region-wide allocation of BOR (reliability) charges to LSEs on a pro rata basis without any examination of whether those LSEs either contributed to the need for reliability dispatches or received a benefit from those dispatches shares the same fundamental flaw as the MISO practice rejected by the Commission," Verde said.

"On its face, the PJM methodology is a grossly imperfect basis for assessing hundreds of millions of dollars of uplift charges. In practice, the PJM methodology results in prudent LSEs such as Verde USA being assessed millions of dollars in unavoidable and non-hedgeable fees," Verde said, as Verde also sought a refund of nearly $1 million.

Docket No. EL15-46

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