On October 17, 2019, FERC directed PJM Interconnection, L.L.C. (“PJM”) and other interested parties to provide information with respect to how uplift costs—i.e., the costs associated with make-whole payments provided by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) to market participants whose commitment and dispatch resulted in a shortfall between the generator’s offer and the revenue earned through market-clearing prices—should be allocated to virtual transactions in PJM, and in particular to Up-to-Congestion (“UTC”) transactions. FERC’s order seeks to update the record in an ongoing Federal Power Act Section 206 investigation into PJM’s UTC and uplift practices that FERC initiated in 2014.

There are three types of virtual transactions in PJM: Incremental Offers (“INCs”), or offers to sell energy at a specified source location in the day ahead market; Decrement Bids (“DECs”), or bids to purchase energy at a specified sink location in the day-ahead market; and UTC transactions, or bids to buy congestion and losses between two points in the day-ahead market. In addition, PJM provides “uplift payments” to market participants to ensure that they recover their costs when market revenues are insufficient or when actual dispatch instructions diverge from the market participants’ dispatch schedules. Shortfalls in market revenues can result from limitations in an RTO/ISO’s ability to accurately model system constraints. For example, if an RTO/ISO system’s physical constraints are not accurately reflected in the system model, its software may not clear all resources needed to resolve the constraint. In such a case, the RTO/ISO must manually dispatch the extra resources needed to resolve the constraint, and will provide a make-whole, “uplift” payment to those resources.

When FERC initiated its investigation into PJM’s allocation of uplift costs in 2014, it observed that while INCs, DECs, and UTC transactions all affect uplift, in PJM only INCs and DECs were subject to uplift charges. FERC therefore sought to determine how uplift charges should be allocated to all virtual transactions in PJM, and also convened a technical conference in 2015 that explored, among other topics, whether PJM’s uplift allocation rules were just and reasonable. However, FERC decided to hold the uplift cost allocation aspect of its investigation in abeyance in January 2017 pending the outcome of its Order No. 844 Notice of Proposed Rulemaking proceeding, which proposed uplift cost allocation reforms as part of a suite of reforms aimed at increasing transparency in price formation (see January 24, 2017 edition of the WER). FERC ultimately declined to adopt the uplift cost allocation reforms proposed in that proceeding (see April 25, 2018 edition of the WER).

FERC’s October 17, 2019 order acknowledged that interested parties submitted comments addressing PJM’s allocation of uplift costs after the 2015 technical conference, but explained that since then, developments in several other proceedings may be relevant to its investigation of PJM’s uplift cost allocation. For example, FERC pointed to a January 2018 order rejecting PJM’s proposal to allocate uplift to UTCs in the same way as uplift is allocated to INCs and DECs (see January 24, 2018 edition of the WER); a February 2018 order accepting PJM’s proposal to reduce eligible trading points for UTCs, INCs, and DECs; and to Order No. 844, which issued in April 2018.

Accordingly, to update the record in the Section 206 proceeding, FERC directed PJM to submit additional briefing in response to various questions outlined in the October 17, 2019 order, and noted an additional opportunity for other interested parties to submit reply briefs within 30 days of PJM’s responsive filing.

FERC’s October 17, 2019 order is available here.