Recognizing the work of the Finance Committee throughout 2016, the Members Committee, at its Sept. 29 meeting, approved revisions to the PJM Tariff to update stated rates.
Suzanne Daugherty, senior vice president, chief financial officer and treasurer, presented PJM’s case for increasing the rates, which recover PJM’s administrative costs for managing the grid and wholesale electricity markets.
The endorsed option is a composite rate of 36 cents per megawatt-hour for two years and then 2.5 percent annual increase to 41 cents in 2024. The Finance Committee recommended it unanimously.
If the PJM Board approves the proposal at its October meeting, PJM will file the tariff changes to the Federal Energy Regulatory Commission. If approved by FERC, the rate would go into effect Jan. 1, 2017.
Daugherty listed the options that the Finance Committee discussed and described the reasons why the proposal was selected over others presented. She added that the efficacy of the proposal has a formal review process within the Finance Committee after five years.
“We want to see how it is working,” said Daugherty. “If the [reserve] is tight for some reason, does that signal some new responsibility that we cannot foresee?” If the recurring refund level is higher than projected currently, PJM would ask the Finance Committee to examine lowering the rates, as it did in 2011.
PJM’s structure for recovering administrative costs was credited recently by Moody’s Investors Service as a driver for upgrading PJM’s and PJM Settlement’s issuer ratings to Aa2 from their previous Aa3. Moody’s cited the anticipated revised tariff’s ability to support the maintenance of an operating reserve and credit metrics at or above their current levels as another reason for the upgrade.
PJM has been reviewing its stated rates with stakeholders since earlier this year to ensure PJM’s continued ability to deliver benefits to the members and the region, to maintain rate stability for members and to continue financial discipline and transparency.
The proposed stated rate meets all of the objectives established by the committee and would project lower annual refunds than any other option with a more gradual increase in rates.
Under stated rates, PJM uses fixed, long-term capped rates for the administrative costs of managing the grid and wholesale electricity markets. Costs are managed within the rates. Other grid operators automatically pass through their administrative costs to members through formula rates that vary from month-to-month or year-to-year.
Daugherty pointed out at the July Members Committee meeting the additional responsibilities in operations, markets, compliance and external relationships that PJM has taken on since stated rates were first implemented in 2006, such as:
- Enhanced physical and cybersecurity programs and practices, including around-the-clock monitoring
- More interregional coordination and gas/electric coordination efforts
- Increased planning and analysis due to environmental regulations, such as the Clean Power Plan and the Mercury Air Toxics Standards rule
- Evolution of new technologies such as synchro phasors, hardware visualization and tools
Other committee approvals/endorsements
- Governing Documents Enhancement & Clarification Subcommittee: Proposed revisions to Operating Agreement clarifying the term “Member/Vendor Open and Competitive Bidding”
- Manual 15: Cost Development Guidelines: Proposed revisions (periodic review process)
- First Energy Transmission Reorganization: Proposed Operating Agreement revisions