PJM and the crisis over FTR underfunding.
Bruce W. Radford is publisher of Public Utilities Fortnightly. Contact him at radford@pur.com.
PJM’s latest crisis—the underfunding of financial transmission rights that we’ve seen over the last few years—pushes regulators right to the edge. How far do they trust wholesale power markets? Do they accept the idea, proven by a famous economist, that freely traded financial instruments can work just as well—better even—than firm, physical contract rights?
In PJM’s case, we are told, the problem occurs when too much negative congestion shows up in real-time balancing. But if congestion is bad, shouldn’t negative congestion be good?
Some lay blame on what they say was likely an oversight—an error that PJM made back in June 2000 when it reconfigured its energy market to adopt a twin settlement system, by adding a day-ahead market as a second market clearing interval, in addition to real-time balancing, but somehow forgot at the same time to correct its FTR funding formula to mesh with the new regime.
Whatever the story, the problem seems first to have emerged in earnest about three years ago, according to testimony given by Brian Farley, director of wholesale transactions for FirstEnergy Solutions, which recently filed a complaint seeking redress at the Federal Energy Regulatory Commission.