posted on Monday, July 17, 2006 8:09 PM by Andrea Kells

PJM Gets out Ahead with Long-Term Transmission Rights Plan

The PJM Interconnection has asked the FERC to bless a new program for offering transmission customers long-term financial rights to hedge the costs of transmission congestion.  PJM's proposal ostensibly responds to a February 2006 FERC rulemaking proposal that would require RTOs and ISOs that oversee organized power markets to make long-term financial transmission rights (LTTRs) available to all transmission customers, in accordance with eight general guidelines.  FERC plans to issue a final rule by August 8, 2006, a deadline that Congress mandated in EPAct 2005.   

Under PJM's current transmission rights scheme, transmission risk is hedged with auction revenue rights (ARRs) that are distributed or sold in two tranches.  The first gives preference to historical native load customers; the second stage allocates remaining capacity to network, qualifying transmission customers and other point-to-point transmission customers.  PJM's new proposal would split the first tranch in two.  In proposed "Stage 1A," PJM would offer 10-year some ARRs to network service users and certain other qualifying transmission customers.  "Stage 1B" would continue annual ARR allocations, retaining the priority for historical native load, as well as offering these annual ARRs to network service users and qualifying transmission.  PJM promotes this modified approach as offering flexibility:   Firm transmission customers can choose between the long-term 10-year hedges and the shorter, annual ones.   

PJM apparently tendered its new approach to LTTRs in advance of a final FERC rule in response to transmission customer interest in and demand for these instruments.