What is Balancing Congestion?

Starting June 1, 2017, all entities that supply power to consumers will receive a new charge from PJM for balancing congestion. This is the result of an order from the Federal Energy Regulatory Commission (FERC).

Before we take you through details about the new charge, below are some definitions that may help you better understand what’s happening. 

• FERC is the federal agency that has authority over electric transmission and wholesale sale rates and services.
• PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity.
• Balancing congestion reflects the imbalance of charges that arise on a real-time basis when less transmission capability exists in the real-time energy market than was assumed to be available in the day-ahead
• Load serving entities (LSEs) are companies that supply power to consumers. Examples include retail energy suppliers like Constellation or utilities that provide standard offer or last resort service. 

What’s the background? 

In November 2016, PJM submitted a compliance filing to FERC. This filing removed balancing congestion from the day-ahead Financial Transmission Rights (FTR) settlement process and instead, allocated balancing congestion costs to real-time load and exports.

On January 31, 2017, FERC issued an order accepting PJM’s November 2016 compliance filing. As a result, PJM will begin charging balancing congestion to LSEs.

What drove this change? 

FERC decided that market participants who purchased FTRs as a hedge against day-ahead congestion were unfairly paying costs linked to real-time congestion charges.

Consumer load patterns that occur in real-time can directly impact balancing congestion charges. This was the main reason for the change in the cost allocation structure. This will shift balancing congestion costs from FTR holders directly to LSEs, like Constellation.

How does this impact me?

You may have recently received a letter from Constellation about the potential impacts. As you make decisions around your next power supply purchase, you may want to consider asking your supplier or consultant how these charges will be reflected in your contract.  

For more details on how this may affect your business or other various product alternatives available, please contact your Constellation representative.