PJM Seeks to Retire Opportunity Cost Calculator, Use IMM Tool

VALLEY FORGE, Pa. — The PJM Markets and Reliability Committee heard the first read of a compromise proposal to eliminate the RTO’s opportunity cost calculator and make the Independent Market Monitor’s calculator the required tool for market sellers.

PJM’s Glen Boyle said the RTO’s calculator would be retired July 1 under the proposal. “There’s a perceived … compliance risk in using the PJM calculator,” said Boyle, the manager of operations analysis and compliance. “So, most market sellers are using the IMM calculator.”

PJM will expand Manual 15’s description of the Monitor’s calculator and conduct an annual review of the tool in conjunction with the Monitor.

In September, 84% of the Market Implementation Committee approved a joint proposal by Panda Power Funds and Dominion Energy that would have made changes to the PJM calculator and improved documentation of the Monitor’s tool. An alternate PJM proposal that would make minor documentation changes to its calculator won only 51% support.

Following the MIC meeting, the joint sponsors negotiated with PJM and the Monitor to develop the compromise on which the MRC will vote in March.

The calculator is intended to ensure generators are made whole for being scheduled by PJM outside their most profitable time periods.

An opportunity cost adder can be included in a cost-based offer when a unit faces environmental restrictions on how much they can operate, an equipment manufacturer imposes an operational restriction because of equipment limitations or the unit faces a fuel limitation resulting from a force majeure event. The value of the adder is based on historical LMPs and forecasted future fuel prices.

‘Page Turn’ Review of Risk Evaluation Rules Set for Wednesday

Proposed Tariff revisions on market participant risk evaluations will be the subject of a “page turn” review at a special MRC meeting this Wednesday, Chief Risk Officer Nigeria Poole Bloczynski told the MRC.

The changes, endorsed by the Financial Risk Mitigation Senior Task Force, would:

• amend the definition of affiliate and add ones for principal, position limits, unreasonable credit risks and hedge exemptions;
• add a provision for re-entry of defaulting market participants;
• strengthen “know your customer” five-year look-back and internal credit score procedures;
• improve PJM’s authority to ban market participants and demand additional collateral; and
• eliminate an exception allowing financial transmission rights participants to avoid the minimum capitalization standard of “a tangible net worth of more than $1 million or tangible assets in excess of $10 million.” The current exception allows an FTR participant to post $500,000 and pay a 10% adder on collateral.

The changes are intended to prevent a repeat of GreenHat Energy’s default on its FTR obligations.

Advocates, TOs Continue Battle over ‘Critical’ Tx Projects

Although the PJM Transmission Owners sector’s critical infrastructure mitigation plan is pending before FERC, that hasn’t ended the bitter debate over it among stakeholders.

NERC critical infrastructure protection reliability standard CIP-014 requires transmission owners to protect assets whose loss or sabotage could result in widespread instability, uncontrolled separation or cascading outages.

The TOs proposed a confidential process (Attachment M-4) for removing critical transmission infrastructure from NERC’s CIP-014 list. They offered other sectors an opportunity to comment on the plan but have invoked their rights under contractual agreements with PJM and FERC orders to file it without majority support from the membership.

In early February, consumer advocates, industrial customers and state regulators asked FERC to reject the TOs’ plan as filed, saying it lacks transparency and improperly restricts input by stakeholders and the RTO (ER20-841). State consumer advocates were particularly upset that PJM endorsed the plan in a FERC filing despite a stakeholder resolution at the January Members Committee meeting arguing that the proposal conflicts with the RTO’s Operating Agreement. (See PJM Supports TO Critical Tx Plan.)

At Thursday’s MC meeting, Greg Poulos, executive director of the Consumer Advocates of PJM States, said the advocates were “a little bit disappointed that PJM didn’t provide a response to the resolution.”

“The stakeholder process seems to carry a little less weight on planning matters,” Poulos said.

Exelon’s Sharon Midgley responded that the resolution “was advisory and did not and could not bind PJM.”

“These events provide evidence of various shortcomings in our stakeholder process and misplaced expectations about PJM’s duties as an independent system operator. PJM is properly respecting its contractual agreement with transmission owners,” she continued. “If stakeholders are concerned about the exercise of transmission owner rights, their recourse is at FERC. But it is improper for stakeholders to co-opt our consensus-based stakeholder governance rules in a self-serving attempt to bolster their litigation position.”

Poulos noted that former CEO Andy Ott raised the issue of critical grid assets at the RTO’s Grid 20/20 conference in September 2017. Ott called for “making critical facilities less critical” by building redundancies such as alternative transmission paths. (See PJM Grid 20/20 Debates Meaning of Resilience.)

“To see that these projects labeled as urgent were not addressed [since 2017] is a big concern,” Poulos said. “If they’re that urgent for three years, what were we doing?”

Alex Stern of Public Service Electric and Gas responded that Poulos’ comments should be placed “in a broader context.” Stern listed recent attacks on grid infrastructure, including the 2013 Metcalf incident, the 2015 Russian hacking attack on three Ukraine utilities and cyberattacks on U.S. utilities by China last year. He also noted concerns in January that rising tensions between the U.S. and Iran could provoke an Iranian attack on critical utility sector infrastructure. (See Iran Cyber Threat Increasing, Experts Say.)

Stern thanked PJM and its Board of Managers “for their courage” in supporting the M-4 filing. “I feel comfortable that the PJM TOs have done what they can,” Stern said. “The decision-making now rests with FERC.”

Midgley said the TOs’ Jan. 19 filing under Federal Power Act Section 205 is subject to a 60-day deadline, meaning FERC should rule by mid-March.

‘Resource Adequacy’ to be Topic of General Session

MC Vice Chair Katie Guerry said “resource adequacy” will be the subject of the General Session at PJM’s Annual Meeting in Chicago May 4-6.

Guerry said the subject was chosen based on discussions between stakeholders and the board at the Liaison Committee meeting in D.C. on Feb. 10.

“We don’t see a resource adequacy problem,” said Greg Carmean, executive director of the Organization of PJM States Inc., citing the RTO’s “substantial” reserve margins. “Are you talking about integrating renewables?”

“That was a core component of the discussion,” Guerry responded, adding that states and their carbon emission goals are an “important component of thinking about that.”

“What we’re really trying to do is take a broad and open-minded look at what resource adequacy would look like” in the future, added Dave Anders, director of stakeholder affairs. “Not specific reserve margins.”

Manual Changes OK’d

The MRC approved two manual changes:

• Manual 14F: Competitive Planning Process: modification in response to a September FERC order that said transmission projects solely needed to address Form 715 planning criteria violations should not be exempt from competition. (See FERC Opens Local Tx Projects to Competition, Cost Sharing.)
• Manual 40: Training and Certification Requirements: revisions resulting from cover-to-cover periodic review; includes updated temporary waiver language to allow more flexibility in addressing compliance with training and certification requirements.

– Rich Heidorn Jr.