Kentucky Limits Retail Customer Participation

Granting an electric cooperative's request for a declaratory order, the Kentucky Public Service Commission has ruled that retail electric customers within the state have no right to participate, either directly or indirectly, in any wholesale electric market administered by a regional transmission organization (RTO) unless the commission has approved a special tariff or contract for such. The co-op, East Kentucky Power Cooperative (EKPC), had posed the question of whether it was legal for a retail customer to sell self-generated power to third-party suppliers or into the wholesale markets overseen by the local RTO, PJM Interconnection. In answering that such sales generally are not lawful, the commission added that neither may retail electric customers sell to PJM or third parties any reduction in load resulting from demand-side management programs, even if PJM has classified them as distributed resource (DR) or energy efficiency resource (EER) programs.

The commission stressed that Kentucky retail consumers who conduct transactions in wholesale electric markets in the absence of explicit authorization under a tariff or contract on file with the commission will be in violation of both state law and commission directives. Consequently, the commission warned, such customers would be subject to termination of service by their retail electric supplier.

The commission stated that while its decision had been in response to a request from but a single applicant (EKPC), the issues raised are of similar import to the state's two largest investor-owned utilities as well. The commission therefore asserted that its ruling is equally applicable to those two companies, Kentucky Power and Duke Energy Kentucky.

The commission remarked that over the years it has consented to functional control of utility transmission facilities being transferred to PJM. The commission observed that each of those rulings included multiple, specific provisions stating that absent a commission-approved tariff or contract, jurisdictional retail customers are prohibited from participating in PJM markets.

The commission acknowledged that its transfer approval orders had not discussed or otherwise set forth the reasoning behind the prohibition. However, the commission expounded, it is obvious that such a prohibition is warranted in light of the fact that Kentucky has not restructured its electric markets and does not allow retail customers to choose their generation supplier.

The commission pointed out that because regulated utilities and co-ops remain obligated to provide sufficient generation and capacity to meet customer demand, they would be placed at a disadvantage in the marketplace if retail customers could participate directly in PJM sales. The commission elaborated that if individual customers were permitted to bid their self-generation into PJM's markets, the utilities would be unable to accurately forecast their respective loads for purposes of bidding into the same markets. In all likelihood, the commission said, the utilities and co-ops would end up overestimating their load requirements because they would be unaware of how much capacity their retail customers were offering.

Looking at DR and EER in particular, the commission noted that Kentucky utilities that are members of PJM are essentially going into the wholesale market blind if they do not know the amount of DR and/or EER being bid into PJM by a retail customer. The commission confirmed that without that information, utilities would be unable to meet their respective statutory duty to adequately plan for meeting demand. As a result, it said, utilities undoubtedly would overestimate their load requirements and procure unneeded generating capacity, the costs of which would be passed on to retail customers.

Moreover, the commission noted, PJM itself had made unconditional commitments that the transfer of control of transmission functions to PJM would not diminish the commission's authority over retail rates. Implicit in such pledges was the expectation that Kentucky retail customers would not participate in PJM's DR programs, whether directly or indirectly, unless a special tariff or contract was obtained from the commission.

The commission concluded that although PJM's comments thereto had referred to EER programs as relatively new products in PJM's markets, those comments gave no indication that the rules for those products had been developed in contradiction of PJM's other unconditional commitments to the commission. Re East Kentucky Power Cooperative, Inc., Case No. 2017-00129, June 6, 2017 (Ky.P.S.C.).