Members Committee Hears Update on Stated Rate

Suzanne Daugherty, senior vice president, chief financial officer and treasurer, presented the work completed to date by the Finance Committee on stated rates  to the Members Committee on July 28.

Daugherty praised the work of the Finance Committee, which has worked over the last seven months in crafting the options that will be narrowed to a Finance Committee recommendation to the PJM Board and Members Committee in the next few weeks.

Under stated rates, PJM uses fixed, long-term capped rates for recovery of the administrative costs of managing the grid and wholesale electricity markets. PJM implemented this stated rate structure in June 2006.

In 2011, PJM voluntarily lowered its composite stated rate to 29 cents per megawatt-hour – reflecting cost containment and the benefits of economies of scale. PJM said the rate would cover its anticipated expenses for approximately five years – providing members with price predictability. The five-year period ends this year.

Other grid operators automatically pass their administrative costs to members through formula rates which vary with monthly expenses and members’ transaction volumes. PJM’s costs are managed within the stated rates for a targeted multi-year period of time with any revenues collected in excess of PJM’s actual expenses refunded back to members in the following quarter.

She listed areas where PJM has invested more since 2006, including technology, cyber security and compliance.

Daugherty said that, moving forward, PJM will look for a Finance Committee recommendation and Members Committee endorsement on a future rate proposal that is projected to provide PJM the resources to serve its members’ needs and is equitable for members. She described an option suggested by the member representatives of the Finance Committee that is a strong candidate for achieving these goals.

As a reference point, the Finance Committee used PJM’s current long-term forecast of 0.7 percent average annual load growth in developing all of its scenarios for the next 10 years. The Finance Committee modeled five different options, with three attaining consensus –  a single step change in stated rates, a multistep change in stated rates (percentage change per year) and a multistep change in stated rates (specific cent(s) per year changes).

The committee will continue to work on the issue, expecting to bring it to the September Members Committee for a vote.