By Rich Heidorn Jr.

FERC on Monday ordered a technical conference to sort out conflicting claims over PJM’s proposed rule changes to reduce underfunding of financial transmission rights.

PJM’s proposed changes, filed in October, were challenged by the Financial Marketers Coalition and others, who said they would be ineffective and discriminatory. The commission said the conference was needed to develop more evidence before it rules (EL16-6-001, ER16-121).

The conference will explore PJM’s claim that its existing rules on FTRs and auction revenue rights are unjust and unreasonable and that the problems would be remedied by its proposed changes. Specifically, the conference will look at ARR modeling and allocation processes; treatment of portfolio positions in allocating underfunding or surplus among FTR holders; and the potential for market manipulation.

An FTR entitles its holder to credits based on LMP differences in the day-ahead energy market when the transmission grid is congested. FTRs can be purchased or converted from ARRs, which are allocated to network and firm point-to-point customers.

PJM improved funding under current rules by modeling more transmission outages, clearing more counterflow FTRs and improving its modeling of loop flow, the alignment of the FTR, day-ahead and real-time energy markets, and market-to-market coordination with MISO.

PJM said the changes raised FTR revenue adequacy from as low as 69% during planning years 2010/11 through 2013/14 to at least 110% since the 2014/15 planning period.

However, PJM said the changes resulted in an unfair shift of revenues from ARR holders to FTR holders. It said the load-serving entities receiving reduced Stage 1B ARRs are largely different from the LSEs receiving the over-allocation of infeasible Stage 1A (10-year) ARRs.

To correct the cost shift, PJM proposed eliminating the netting of negatively valued FTRs against positively valued FTRs within portfolios. It also proposed increasing current ARR results by 1.5% annually — equal to the average ARR 10-year growth rate since 2007 — in the Stage 1A 10-year simultaneous feasibility process. (See PJM to File FTR, ARR Rule Changes with FERC.)

PJM said the changes will increase the likelihood of infeasible ARRs, potentially identifying needed transmission upgrades such as Commonwealth Edison’s Grand Prairie Gateway project sooner. The 60-mile 345-kV line through four counties in northern Illinois began construction in the second quarter of 2015 and is expected to begin service in 2017. The company says it will allow the import of cheaper wind power from the west, saving customers about $250 million net of all costs within the first 15 years.

Commenters including utilities and the Independent Market Monitor told FERC they generally supported the proposed changes. But the Financial Marketers Coalition (representing DC Energy, Inertia Power, Saracen Energy East and Vitol), Shell Energy N.A. and others protested the elimination of netting, saying PJM failed to show the current rules are unjust and unreasonable and that the change would cure underfunding.

Without netting, the coalition argued, underfunding risks would shift to those that take on counterflow FTR obligations and could encourage market manipulation.

Opponents also questioned whether the proposed 1.5% escalation would be as effective in preventing ARR infeasibilities as claimed by PJM.

[Editor’s Note: An earlier version of this article mistakenly reported that J. Aron & Co. is a member of the Financial Marketers Coalition.]