Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $767.9 million in credits from the FTR auctions during the 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 to 2015 planning period, ARR holders received $735.3 million in ARR credits. Table 13-25 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2014 to 2015 planning period and the 2015 to 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 Total FTR auction net revenue $767.9 $956.2 Annual FTR Auction net revenue $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 $20.0 ARR target allocations $735.3 $927.0 ARR credits $735.3 $927.0 Surplus auction revenue $32.6 $29.3 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% * Shows twelve months for 2014/2015 and four months for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 planning periods. The ARR MW held do not include self scheduled FTRs and do include Residual ARRs starting in August 2012. FTR prices increased in the 2014 to 2015 Annual FTR Auction as a result of reduced supply caused by PJM’s assumption of more outages in the model used to allocate Stage 1B and Stage 2 ARRs. The increased FTR prices result in an i...
Revenue Adequacy. For the 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $735.3 million while PJM collected $767.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2013 to 2014 planning period, the ARR target allocations were $506.2 million while PJM collected $568.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRs. • ARRs as an Offset to Congestion. ARRs served as an effective offset against congestion. The total revenues received by ARR holders, including self-scheduled FTRs, offset 100 percent of the total congestion costs experienced by ARR holders across the Day-Ahead Energy Market and balancing energy market for the 2014 to 2015 planning period and for the 2013 to 2014 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report correct monthly payout ratios to reduce understatement of payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate portfolio netting to eliminate cross subsidies among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate subsidies to counter flow FTRs by applying the payout ratio to counter flow FTRs in the same way the payout ratio is applied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce FTR sales on paths with persistent overallocation of FTRs including clear rules for what defines persistent overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement a seasonal ARR and FTR allocation system to better represent outages. (P...
Revenue Adequacy. Congestion revenue is created in an LMP system when all loads pay and all generators receive their respective LMPs. When load pays more than the amount that generators receive, excluding losses, positive congestion revenue exists and is available to cover the target allocations of FTR holders. The load MW exceed the generation MW in constrained areas because part of the load is served by imports using transmission capability into the constrained areas. That is why load, which pays for the transmission capability, receives ARRs to offset congestion in the constrained areas. Generating units that are the source of such imports are paid the price at their own bus which does not reflect congestion in constrained areas. Generation in constrained areas receives the congestion price and all load in constrained areas pays the congestion price. As a result, load congestion payments are greater than the congestion-related payments to generation.12 In general, FTR revenue adequacy exists when the sum of congestion credits is as great as the sum of congestion across the positively valued FTRs. Revenue adequacy must be distinguished from the adequacy of FTRs as an offset against congestion. Revenue adequacy is a narrower concept that compares the revenues available to cover congestion to the target allocations across specific paths for which FTRs were available and purchased. The adequacy of FTRs as an offset against congestion compares FTR revenues to total congestion on the system as a measure of the extent to which FTRs offset the actual, total congestion across all paths paid by market participants, regardless of the availability or purchase of FTRs. FTRs are paid each month from congestion revenues, both day ahead and balancing, FTR auction revenues and excess revenues carried forward from prior months and distributed back from later months. At the end of a planning period, if some months remain not fully funded, an uplift charge is collected from any FTR market participants that hold FTRs during the planning period based on their pro rata share of total net positive FTR target allocations, excluding any charge to FTR holders with a net negative FTR position for the planning year. For the 2010 to 2011 planning period, FTRs were not fully funded and thus an uplift charge was collected. FTR revenues are primarily comprised of hourly congestion revenue, from the day ahead and balancing markets, and net negative congestion. FTR revenues also include ARR excess which i...
Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. Total net FTR auction revenue for the 2016/2017 planning period, before accounting for self scheduling, load shifts or residual ARRs, was $941.5 million. The FTR auction revenue collected pays ARR holders’ credits. During 2017/2018 planning period, total net FTR auction revenue was $558.4 million. Table 13-7 lists projected ARR target allocations from the Annual ARR Allocation and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2016/2017 planning period and the first four months of the 2017/2018 planning periods. Table 13-7 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2016/2017 and 2017/2018 2016/2017* 2017/2018** Total FTR auction net revenue $941.5 $558.4 Annual FTR Auction net revenue $909.0 $542.2 Monthly Balance of Planning Period FTR Auction net revenue* $32.5 $16.2 ARR target allocations $914.2 $550.4 ARR credits $914.2 $550.4 Surplus auction revenue $27.4 $8.0 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% * Shows twelve months for 2016/2017 ** Shows four months for 2017/2018. Figure 13-2 shows the dollars per ARR MW held for each month of the 2010/2011 planning period through the first four months of the 2017/2018 planning periods. The ARR MW held do not include self scheduled FTRs but do include Residual ARRs starting in August 2012. FTR prices increased in the 2014/2015 Annual FTR Auction as a result of reduced supply caused by PJM’s assumption of more outages in the model used to allocate Stage 1B and
Revenue Adequacy. For the first 10 months of the 2017/2018 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $479.2 million, while PJM collected $623.6 million from the combined Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. ARRs have historically been fully funded by the revenue collected from the Annual FTR Auction. As a result, ARRs do not receive revenue collected from the long term or monthly auctions. For the 2016/2017 planning period, the ARR target allocations were $914.2 million while PJM collected $941.5 million from the combined Annual and Monthly Balance of Planning Period FTR Auctions. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 73.3 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2011/2012 planning period through the 2016/2017 planning period, under the previous allocation of balancing congestion. In the first 10 months of the 2017/2018 planning period, in which balancing congestion and M2M payments were directly assigned to load, total ARR and self scheduled FTR revenues offset 61.6 percent of total congestion costs. The goal of the FTR market design should be to ensure that load has the rights to 100 percent of the congestion revenues. Financial Transmission Rights
Revenue Adequacy. For the 2016 to 2017 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $908.9 million, while PJM collected $926.3 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2015 to 2016 planning period, the ARR target allocations were $931.6 million while PJM collected $968.1 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The year over year decrease in ARR target allocations and auction revenue is a result of decreased prices from the previous planning period resulting from continued reduced allocation of Stage 1B and Stage 2 ARRs. ARR revenue adequacy is also affected by PJM’s clearing of additional counter flow FTRs to alleviate infeasibilities from Stage 1A. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 63.8 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2014 to 2015 planning period. In the first four months of the 2016 to 2017 planning period, total ARR and self scheduled FTR revenues offset 95.7 percent of total congestion costs. The total offset for the last six planning periods is 71.4 percent. The goal of the design should be to return 100 percent of the congestion revenues to the load. Financial Transmission Rights
Revenue Adequacy. For the 2015 to 2016 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $930.7 million, while PJM collected $967.4 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2014 to 2015 planning period, the ARR target allocations were $735.3 million while PJM collected $767.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRs. For the 2015 to 2016 planning period ARR dollars per MW increased 15.6 percent relative to the 2013 to 2014 planning period. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 63.8 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2014 to 2015 planning period. In the first ten months of the 2015 to 2016 planning period, total ARR and self scheduled FTR revenues offset 83.6 percent of total congestion costs. Financial Transmission Rights
Revenue Adequacy. For the first four months of the 2018/2019 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $243.1 million, while PJM collected $886.0 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. ARRs have historically been fully funded by the revenue collected from the Annual FTR Auction. As a result, ARRs do not receive revenue collected from the long term or monthly auctions. For the 2017/2018 planning period, the ARR target allocations were $573.8 million while PJM collected $601.2 million from the combined Annual and Monthly Balance of Planning Period FTR Auctions. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 73.3 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2011/2012 planning period through the 2016/2017 planning period, under the previous allocation of balancing congestion. In the 2017/2018 planning period, in which balancing congestion and M2M payments were directly assigned to load, total ARR and self scheduled FTR revenues offset 50.7 percent of total congestion costs. Under the new rules for surplus congestion revenue allocation beginning in the 2018/2019 planning periods, ARRs, self scheduled FTRs and surplus congestion revenue would offset 95.9 percent of total congestion costs. The goal of the FTR market design should be to ensure that load has the rights to 100 percent of the congestion revenues. Financial Transmission Rights
Revenue Adequacy. For the first ten months of the 2012 to 2013 planning period, the ARR target allocations were $565.4 million while PJM collected $624.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions through March 31, 2013, making ARRs revenue adequate. For the 2011 to 2012 planning period, the ARR target allocations were $982.9 million while PJM collected $1,091.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs as an offset to congestion can be measured by comparing the revenue received by ARR holders to the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 89.8 percent of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 to 2012 planning period, the total revenues received by the holders of all ARRs and FTRs offset more than 88.8 percent of the total congestion costs within PJM and for the 2010 to 2011 planning period 97.3 percent.
Revenue Adequacy. For the first seven months in the 2012 to 2013 planning period, the ARR target allocations were $565.4 million while PJM collected $620.2 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions through December 31, 2012, making ARRs revenue adequate. For the 2011 to 2012 planning period, the ARR target allocations were $982.9 million while PJM collected $1,091.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARR Proration. Stage 1A ARR requests may not be prorated. As a result, several facilities were overallocated for a total of 892 MW. Of the requested ARRs for Stage 1B, 11,581 MW were prorated and of the requested ARRs for Stage 2, 55,201 MW were prorated for the 2012 to 2013 planning period. For the 2011 to 2012 planning period Stage 1A was not prorated nor overallocated. Some of the requested ARRs for the 2011 to 2012 planning period were prorated in Stage 1B and Stage 2 as a result of binding transmission constraints. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs as an offset to congestion can be measured by comparing the revenue received by ARR holders to the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 82.1 percent of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 to 2012 planning period, the total revenues received by the holders of all ARRs and FTRs offset more than 88.8 percent of the total congestion costs within PJM and for the 2010 to 2011 planning period 97.3 percent.
