On September 17, 2010, FERC accepted proposed revisions to PJM Interconnection, L.L.C.’s (“PJM”) Operating Agreement, and Attachment K to their open access transmission tariff (“Tariff”).  The changes represented a “temporary solution” to prevent alleged manipulation in PJM’s energy markets.  The September filings were preceded by a lengthy history, as summarized below.

In 2007, FERC received complaints from several parties regarding PJM’s marginal line loss and allocation methodology.  These complainants were engaged in virtual transactions or financial marketing transactions and argued that either: (1) they should not be assigned marginal line losses or (2) if they are assigned marginal line losses they should receive a share of the surplus.  The Commission found that PJM’s method of distributing line losses to those that pay to support fixed costs of the transmission grid was reasonable.  The Commission then granted rehearing on the issue of allocation of the over-collected costs, and on October 16, 2008, FERC directed PJM to revise its tariff to include a credit to those who pay for fixed costs of the transmission system proportional to the load represented by their transmission usage.

On March 26, 2009, PJM submitted revisions to Attachment K that seek to allocate total transmission loss charges to each Network Service User and Transmission customer in proportion to its ratio share of the total megawatt-hours of energy delivered to load in PJM.  The revisions also allocate transmission loss charges to the total exports of megawatt-hours of energy from PJM.  PJM also clarified that Network Service Users will continue to receive surplus marginal line loss collections, but this will also include Transmission Customers. 

On August 18, 2010, PJM proposed to eliminate the requirement that customers must reserve transmission service for Up-To Congestion bids in the day-ahead since most deals were financial, so no power was actually transported.  Thus, the proposal eliminated the line loss credit by removing the transmission-reservation charge tied to Up-To Congestion Bids.  The modifications to the PJM tariff will have no effect on transactions with an actual physical delivery of power.

PJM also proposed to change the way in which transmission line loss charges are distributed so that non-firm transmission service customers reflects the discounted rate they pay for transmission service.   This proposal would discount marginal loss allocation to non-firm transmission service customers in connection with their lower charges for transmission reservation.  In accepting PJM’s temporary solution in the September 17 order, FERC also stated there will be a stakeholder process to determine if other alternatives exist, and PJM should submit that stakeholder report by December 31, 2010.  

A copy of the Commission’s Order is available at www.ferc.gov under Docket No. ER10-2280 and here.