FERC Grants FirstEnergy Solutions Complaint Regarding Auction Revenue Rights

Granting a complaint filed by FirstEnergy Solutions Corp., FERC ordered PJM to revise its rules governing the Auction Revenue Right (ARR) allocation process for transmission facilities that have been modeled as out-of-service for the entire year but which return to service for one or more months (EL12-50).

Background on the complaint

PJM's Tariff includes a mechanism for the allocation of ARRs to those customers with historic transmission paths. This occurs in Stage 1 of PJM's allocation procedures. If PJM determines that certain paths will not be available for some portion of the year, these existing transmission paths may be modeled as being out of service for the annual auction. In that circumstance, customers that ordinarily would be eligible for those ARRs under Stage 1 are not allocated those ARRs/FTRs [Financial Transmission Rights] during the annual auction.

These transmission paths, however, may return to service during the year. But if they do, the FTRs are not allocated to the customers that would have been able to select these paths under Stage 1. Rather, the FTRs associated with these transmission paths are sold in monthly FTR auctions to the highest bidder. As a result, customers with Stage 1 rights to the ARRs represented by these transmission paths do not receive the allocation to which they otherwise would be entitled, FERC said. Therefore, the FTRs associated with the return to service of existing transmission capability are not able to serve as a financial replacement to firm transmission service, or as a hedge for the LSE against congestion costs over a given pathway.

In contrast, when the ARRs result from upgraded or newly-constructed transmission capability, PJM does not allocate them using the monthly auctions, but allocates them under its residual auction procedures to Stage 1 customers. PJM does not provide a reasoned basis for distinguishing the difference in allocation procedures, FERC said, noting that PJM acknowledges that allocating ARR associated with the return to service of existing transmission capability could be allocated to the parties eligible for these paths under the same procedures used with respect to newly-constructed or upgraded transmission capability.

"We conclude that PJM's tariff is unjust and unreasonable, and unduly discriminatory, in not allocating ARRs resulting from existing transmission facilities (modeled as being out of service) that return to service to the customers under the Stage 1 allocation procedures," FERC held.

"Allocation of these ARRs to customers eligible under Stage 1 will be consistent with the goals of providing firm service to network and point-to-point transmission customers based on their historic transmission paths. We also find that such allocation will result in meeting the reasonable needs and expectations of LSEs," FERC added.

"Under section 206, we direct PJM to apply the same procedures in section 7.9 that it uses for allocating the increase in transmission capability under this section as of the date of this order. PJM is also required to make a compliance filing within 60 days of the date of this order to revise section 7.9 so that it covers existing transmission capacity that returns to service," FERC ordered