By Rich Heidorn Jr.

FERC on Thursday approved settlements of two complaints over PJM’s regulation market design despite opposition from Dominion Energy and the Independent Market Monitor (ER19-1651).

Regulation service is the injection or withdrawal of real power by facilities that respond to PJM’s automatic generation control (AGC) signal to maintain system frequency.

The settlements resolve complaints filed in 2017 by the Energy Storage Association (EL17-64) and Invenergy and Renewable Energy Systems Americas (RESA) (EL17-65), which alleged PJM’s January 2017 regulation market redesign violated commission precedent and discriminates against faster, dynamic “RegD” resources such as battery storage.

The complaints alleged that the January 2017 signal redesign directed RegD resources to operate outside of their design parameters, resulting in performance and efficiency issues, reduced compensation and damaged equipment.

FERC partially granted the complaints, finding that PJM implemented the redesign improperly through its manuals and not its Tariff. After initially ordering a technical conference on the issue, the commission initiated settlement proceedings in June 2018. (See FERC Postpones Tech Conference on PJM Regulation Market.)

The commission said the “overall effect of the settlement is just and reasonable” because the compromise between PJM and the battery owners “outweigh the expense and uncertainties of further litigation, which could result in a very different regulation market design. The settlement supports grid reliability by facilitating the continued operation of short-duration resources on the PJM system, which reduces the potential for sharp market disruptions.”

Invenergy said it supported the settlement, despite its continued exposure to the “30-minute conditionally neutral signal” implemented in 2017 “because it believes that the limited window of market and operational stability the settlement provides is preferable to continued litigation,” the commission said.

PJM estimated the settlement will cost about $8 million over its three-and-a-half-year term.

The commission said the settlement “is no worse for Dominion and the IMM than the likely result of continued litigation.”

“Load-serving entities like Dominion will benefit from the settlement’s contribution to controlling ACE [area control error] while the cost of the settlement to load is minimal.”

FERC said the Monitor failed to provide evidence to back its contention that the compensation under the settlement exceeds that which was available to batteries before 2017. “Further, the commission need not find that the settlement rate is exactly the same as the rate the commission would establish on the merits after litigation. Settlements by nature are compromises, and the commission typically does not require settling parties to justify individual elements of a settlement package.”

The commission on Thursday also denied rehearing of its March 2018 order rejecting PJM’s proposed revisions to build on the January 2017 redesign (ER18-87).

The March 2018 order rejected PJM’s regulation changes, saying they were inconsistent with commission regulations and Order 755 because it did not compensate for actual mileage — the absolute amount of regulation up and down a resource provides in response to the system operator’s dispatch signal — and did not compensate all regulation resources based on the quantity of regulation service provided.

Monitor Joe Bowring criticized the rehearing ruling Thursday during a Markets Committee briefing on his recently released State of the Market Report, which found that the regulation market design is “flawed.”

FERC “said the regulation market was just fine,” Bowring said. “It’s actually not just fine. Its horrifically bad.”

The Monitor’s report said the design fails “to correctly incorporate a consistent implementation of the marginal benefit factor in optimization, pricing and settlement” and uses an incorrect definition of opportunity cost. The IMM also said the market structure is “not competitive” because it failed the three-pivotal-supplier (TPS) test in almost 91% of the hours in 2019.

However, it concluded that participant behavior and market performance are competitive because market power mitigation requires competitive offers when the TPS test is failed “and there was no evidence of generation owners engaging in noncompetitive behavior.”

“We had a hard time deciding whether we wanted to call the regulation market results competitive because the regulation market design is so bad,” Bowring told the MC. “It’s not compensating people correctly. It’s not calculating the economic value of regulation.”