Members narrowed the scope of a task force created to improve funding of financial transmission rights (FTR) Thursday, agreeing to eliminate consideration of balancing congestion.

The Markets and Reliability Committee approved the narrowed scope after first rejecting a proposed charter for the FTR/ARR Senior Task Force.

The MRC approved the charter on a second vote, which called for removing from the charter and issue charge a reference to “enhancing the mechanism by which balancing congestion is allocated.”

The MRC had approved the task force on first reading May 29 after PJM officials said they wanted to fast-track the issue in order to have a solution in place before next year’s FTR auction. (See New Task Force to Target FTR Underfunding.)

PJM said it had suggested an altered allocation of balancing congestion as a potential transition mechanism for any rule changes.

At the task force’s first meeting, however, Market Monitor Joe Bowring objected to the inclusion of the balancing congestion issue. Bowring told the MRC Thursday that the task force’s work would be “bogged down” by including the issue, which has been the subject of litigation and has eluded previous stakeholder attempts at consensus. Bowring said members could craft a transition without it.

Others, including Susan Bruce of the PJM Industrial Customer Coalition agreed, calling Bowring’s observation “a cautionary tale on approving things on first read.”

Pamela Quinlan of Rockland Electric said she agreed with Bruce’s concern over approving matters on first read. “People walked away with different understandings of what this group is actually going to work on,” she said.

Dan Griffiths, executive director of the Consumer Advocates of PJM States (CAPS), said that including balancing congestion in the charter suggested the task force had already decided on a solution.

ARRs ‘Sacred Cow’

Steve Lieberman of Old Dominion Electric Cooperative, however, opposed the narrowed scope. “We agreed to the problem statement with the understanding that it would be a broad discussion,” he said.

“We’re very sensitive to focusing only on ARRs [auction revenue rights]” as a solution to the underfunding, Lieberman said, calling ARRs the “sacred cow” for load-serving entities.

PJM Executive Vice President for Markets Andy Ott said the task force would be hamstrung with the narrowed scope. “I don’t know how you talk about an expanding set of causes” without considering balancing congestion, he said.

Jason Barker of Exelon agreed, noting that PJM told the task force meeting June 25 that balancing congestion represented almost $420 million in revenue inadequacy for 2013/14, nearly two-thirds of the total. “We’re interested in discussing all of revenue inadequacy, not one-third of it,” he said.

Bowring had proposed eight changes that he said would improve funding adequacy to 91% from the current 72%. “Either do ARRs only or consider everything,” Bowring said, calling PJM’s original scope a “half-measure.”

In his 2013 State of the Market report, the Monitor rejected suggestions that load subsidize payments to FTR holders by ignoring balancing congestion when calculating total congestion dollars available to fund FTRs.

“This approach would ignore the fact that loads must pay both day-ahead and balancing congestion,” the Monitor said. “To eliminate balancing congestion from the FTR revenue calculation would require load to pay twice for congestion. Load would have to continue paying for the physical transmission system as a hedge against congestion and pay for balancing congestion in order to increase the payout to holders of FTRs who are not loads.”

Growing Shortfall

PJM told the task force Wednesday that the shortfall could be narrowed by allowing proration of Stage 1A allocations. PJM said it would improve FTR funding by removing infeasibilities and improve confidence in FTR values with a “minimal impact” on ARR revenues.

A second alternative proposed by PJM would remove Stage 1 historical resources when they physically retire. PJM said transmission system rights are not necessary for generators that do not exist.

PJM says more than 15% of Stage 1 historical generation (25,544 MW) has retired or submitted deactivation notices since the ARR allocation process was designed.