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 $626.7 million in credits from the FTR auctions during the 2012 to 2013 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits with an average hourly ARR credit of $1.06 per MW. Table 12-34 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 2011 to 2012 and the 2012 to 2013 planning periods. Table 12‑34 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 2012/2013 2013/2014 Total FTR auction net revenue $626.7 $559.5 Annual FTR Auction net revenue $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 $1.1 ARR target allocations $570.5 $502.4 ARR credits $570.5 $502.4 Surplus auction revenue $56.2 $57.1 ARR payout ratio 100 100 FTR payout ratio* 67.8 74.7 * Shows twelve months for 2012/2013 and one month for 2013/2014. ARR and FTR Revenue and Congestion
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 $568.8 million in credits from the FTR auctions during the 2013 to 2014 planning period. During the 2013 to 2014 planning period, ARR holders received $506.2 million in ARR credits. Table 13-31 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 2012 to 2013 planning period and the 2013 to 2014 planning periods. $50 $- 13/14 14/15 Table 13‑32 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 2012/2013 2013/2014 Total FTR auction net revenue $626.7 $568.8 Annual FTR Auction net revenue $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue $23.9 $10.4 ARR target allocations $570.5 $506.2 ARR credits $570.5 $506.2 Surplus auction revenue $56.2 $62.6 ARR payout ratio 100% 100% FTR payout ratio 67.8% 72.8% ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences As an illustration of the relationship between FTRs and congestion, Figure 13-18 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period. The day-ahead and real-time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices.
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 $927.0 million, while PJM collected $956.2 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. With the decrease in Stage 1B and Stage 2 ARR allocations, total ARR revenue has increased at a slower rate than congestion costs. For the 2015 to 2016 planning period ARR dollars per MW increased 111.8 percent while congestion only increased 29.1 percent relative to the 2013 to 2014 planning period. • 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 2015 to 2016 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 in...
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 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 based on that transmission capability. 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.11 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 2011 to 2012 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 inc...
Revenue Adequacy. For the 2017/2018 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $562.7 million, while PJM collected $601.2 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 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 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, ARRs and self scheduled FTRs would have offset 76.8 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 $911.4 million, while PJM collected $935.7 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 seven months of the 2016 to 2017 planning period, total ARR and self scheduled FTR revenues offset 82.3 percent of total congestion costs. The total offset for the last six planning periods is 70.9 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 $928.8 million, while PJM collected $962.0 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 including congestion in the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 planning period. In the first seven months of the 2015 to 2016 planning period, total ARR and self scheduled FTR revenues offset 85.8 percent of total congestion costs. Financial Transmission Rights
Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to 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 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 will receive $947.3 million in credits from the Annual FTR Auction during the 2011 to 2012 planning period, with an average hourly ARR credit of $1.05 per MW. During the comparable 2010 to 2011 planning period, ARR holders received $1,028.8 million in ARR credits, with an average hourly ARR credit of $1.15 per MW. Table 12-33 lists ARR target allocations and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2010 to 2011 and the 2011 to 2012 (through December 31, 2011) planning periods. Annual FTR Auction net revenue has been sufficient to cover ARR target allocations for both planning periods. The 2011 to 2012 planning period’s Annual and Monthly Balance of Planning Period FTR Auctions generated a surplus of $104.5 million in auction net revenue through December 31, 2011, above the amount needed to pay 100 percent of ARR target allocations. The entire 2010 to 2011 planning period’s Annual and Monthly Balance of Planning Period FTR Auctions generated a surplus of $45.5 million in auction net revenue, above the amount needed to pay 100 percent of ARR target allocations. Table 12-30 Annual ARR allocation volume: Planning periods 2010 to 2011 and 2011 to 2012 Planning Period Stage Round Requested Count Requested Volume (MW) Cleared Volume (MW) Cleared Volume Uncleared Volume (MW) Uncleared Volume 2010/2011 1A 0 8,862 61,793 61,793 100.0% 0 0.0% 1B 1 3,885 27,850 27,850 100.0% 0 0.0% 2 2 1,901 15,333 4,160 27.1% 11,173 72.9% 3 1,374 15,321 4,167 27.2% 11,154 72.8% 4 1,247 15,317 3,872 25.3% 11,445 74.7% Total 4,522 45,971 12,199 26.5% 33,772 73.5% Total 17,269 135,614 101,842 75.1% 33,772 24.9% 2011/2012 1A 0 12,654 64,160 64,160 100.0% 0 0.0% ...
Revenue Adequacy. For the first seven 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 $555.5 million, while PJM collected $568.6 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. 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 74.5 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 2017/2018 planning period. In the first seven 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 79.4 percent of total congestion costs. Without the allocation of balancing congestion to load, the total offset offered by ARRs and FTRs would have been 90.5 percent. 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.
