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FERC Approves PJM Cost Allocation Settlement, Denies RESA Objections On 2016 Start Date (Costs Changing Back To 2016)

RESA Had Warned "Retroactive" Charges Under Settlement Could Leave Retail Suppliers Exposed To Being Unable To Recover Costs

June 1, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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FERC approved a contested settlement agreement concerning the cost allocation methodology for existing and new transmission facilities in PJM, modifying the prior cost allocation due to remands from the courts.

As relevant to the retail market, the contested settlement addresses the cost allocation of transmission facilities ultimately paid by LSEs such as retail suppliers, and required exchanges due to such changes versus the prior billings, with the changes proposed to be effective as of January 1, 2016.

The Retail Energy Supply Association did not oppose the amounts to be exchanged under the settlement.

However, RESA objected to the implementation of the settlement effective January 1, 2016. RESA contended that the settlement should be effective and the rates collected effective the later of the date FERC approves the Settlement or January 1, 2017.

RESA had noted that the settlement, "results in a change in rate design," and that retail suppliers cannot adjust pre-existing contracts to reflect such change

RESA had said, "RESA Members rely on certainty provided by the rates, terms and conditions in Tariffs. Implementing the Settlement retroactive to January 1, 2016, would be inconsistent with RESA members' reasonable reliance on the PJM Tariff. Unlike investor-owned utilities, entities participating in retail access do not have the same mechanisms for deferring or recovering their costs. Retail suppliers often price their products and then enter into long-term contracts with customers. Charges that are unknown and sought to be recovered retroactively are not likely included in the RESA member's pricing, leaving the retail supplier exposed to being unable to recover these costs. Uncertainty such as that presented by the Settlement in this proceeding may cause the retail supplier to absorb these costs, because the customers served by the LSE today were not the same customers that the LSE served when the rates based on the prior rate design were collected."

RESA had said in 2016 comments that, "RESA Members rely on certainty provided by the rates, terms and conditions in Tariffs. Implementing the Settlement retroactive to January 1, 2016, would be inconsistent with RESA members' reasonable reliance on the PJM Tariff. Unlike investor-owned utilities, entities participating in retail access do not have the same mechanisms for deferring or recovering their costs. Retail suppliers often price their products and then enter into long-term contracts with customers. Charges that are unknown and sought to be recovered retroactively are not likely included in the RESA member's pricing, leaving the retail supplier exposed to being unable to recover these costs. Uncertainty such as that presented by the Settlement in this proceeding may cause the retail supplier to absorb these costs, because the customers served by the LSE today were not the same customers that the LSE served when the rates based on the prior rate design were collected January 1, 2017, RESA members can take some steps to minimize any impacts these retroactive rate design changes will have on their portfolios."

FERC dismissed RESA's concerns.

"We find January 1, 2016 date establishes a reasonable date for dividing the going-forward period from the historical period and that such a date is not an impermissibly retroactive date. As a result of the remand, the Commission would be able to make adjustments to correct the legal error. The only issue here is whether the assignment of cost responsibility pursuant to the Settlement for the Covered Transmission Enhancements should be made as part of the going-forward or historical period. The parties were able to calculate the cost responsibility assignments for 2016 based on actual data rather than negotiated amounts based on the black box allocations of the Settlement as an approximation (based on the use of a 2019 proxy year) of the current just and reasonable rate applicable to the historical period. We therefore find the January 1, 2016 date for dividing the historical from the going-forward period under the Settlement reasonable," FERC said in approving the settlement and its January 1, 2016 effective date for rates.

Docket EL05-121-009

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