Markets and Reliability Committee
Liquidation Process Endorsed
The Markets and Reliability Committee endorsed revisions to PJM’s rules for liquidating defaulted financial transmission rights positions by a sector-weighted vote of 4.59 (92%), easily surpassing the 66% threshold.
In December 2018, PJM implemented changes to its Tariff and Operating Agreement ending the practice of liquidating a defaulting FTR participant’s open positions. This action followed GreenHat Energy’s portfolio default. (See FERC OKs Key PJM Changes to Address GreenHat Default.)
Chief Risk Officer Nigeria Poole Bloczynski reviewed the revisions, saying work conducted at the Financial Risk Mitigation Senior Task Force made PJM determine its desire to re-establish the ability to liquidate defaulted FTR open positions in a “prudent and practical manner.” Bloczynski said the RTO wants to provide flexibility in the way it exercises liquidation rights based on market liquidity, the size of the defaulted portfolio and market conditions.
The new rules would allow the RTO to liquidate defaulted FTR open positions by auctioning off portions of a portfolio across several regular auctions or conducting one or more special FTR liquidation auctions.
Bloczynski said PJM had several meetings with stakeholders since the issue was brought up at the September MRC meeting to address concerns that were raised and made enhancements to the Tariff and OA. (See “Liquidation Process,” PJM MRC/MC Briefs: Sept. 17, 2020.)
Some of the changes included renaming a section of Attachment K in the Tariff by removing the words “closing out” because it is not a defined term. Changes were also added to Section 15.1 of the OA and Attachment Q of the Tariff.
James Ramsey of Perast Capital Management offered a friendly amendment to Attachment K that would provide notice to market participants “at least 24 hours prior to the close of an applicable financial transmission rights auction or special auction bidding window.”
Several stakeholders asked PJM’s opinion on the friendly amendment. Bloczynski said the RTO felt the proposed language was already “adequate” as far as transparency and advanced notice and that providing 24-hour notice before an auction closes would “likely be too late for most market participants.”
Greg Poulos, executive director of the Consumer Advocates of the PJM States, objected to the friendly amendment based on PJM’s opinion, taking it out of the endorsement vote.
Howard Haas, chief economist for Monitoring Analytics, said the proposal would give PJM too much discretion and provide no metrics to guide the RTO’s decisions about how to how to exercise the discretion in deciding how to handle liquidations.
Although she would vote for PJM’s proposal, Susan Bruce of the PJM Industrial Customer Coalition encouraged the RTO to further flesh out the rules so impacted parties would have “rights of recourse.”
“I understand PJM’s looking for more discretion, and I respect that,” Bruce said. “I think there’s also great risk to market participants in that situation.”
The changes were later endorsed by acclamation vote at the Members Committee meeting.
IRM Study Results Endorsed
Stakeholders endorsed an installed reserve margin (IRM) of 14.4%, down from 14.8% in 2019, along with new winter weekly reserve targets, though some questioned the RTO’s “over-procurement” of capacity.
Patricio Rocha Garrido of PJM reviewed the 2020 Reserve Requirement Study (RRS) results, which determined the final IRM and forecast pool requirement (FPR) for 2021/22 through 2023/24 and establishes the initial values for 2024/25. The results are based on the 2020 capacity model, load model and capacity benefit of ties (CBOT).
The 2020 capacity model is putting downward pressure on the IRM, Rocha Garrido said, with the average effective equivalent demand forced outage rate (EEFORd) of 5.78%, compared to 6.03% in the 2019 RRS. Rocha Garrido said the lower average EEFORd was caused by the increased representation of combined cycle units and gas turbines.
The CBOT — the help PJM can expect from imports during peak loads — is estimated to increase pressure on the IRM. Rocha Garrido said imports from neighboring RTOs have decreased from 1.6% in 2019 to 1.5% in 2020.
The FPR is essentially the same as 2019, Rocha Garrido said, coming in at 1.0865 (8.65%) instead of 1.086 the previous year.
The PJM and world load models used, based on the 2002-2014 period, were approved by the Planning Committee in August. Analysis from the 2020 PJM Load Forecast Report released in January was also used.
Erik Heinle of the D.C. Office of the People’s Counsel said his office “remains concerned” that that there is an over-procurement of capacity as a result of the load forecast, the IRM and other factors. Heinle abstained from the vote and encouraged PJM to consider using 15 years of historical data as a compromise, instead of the 10 years the OPC would like to see for forecasting and modeling.
“We want to continue a dialogue with respect to load forecasting and reserve margins,” Heinle said.
Garrido said PJM is open to having a dialogue concerning procurement of capacity but said the megawatt number in the load forecast and capacity procurement has no impact on the calculated IRM values.
Poulos said there is “great concern” among the advocates about over-forecasting and over-procurement of capacity, calling it “one of the greatest concerns” of the group.
Joe Bowring, head of Independent Market Monitor Monitoring Analytics, said he agreed with Heinle’s complaint and would like to see the conversation about forecasting brought from the Load Analysis Subcommittee to a broader stakeholder group like the MRC. Bowring said forecasting has a broader impact on how the capacity market operates.
“PJM is over-procuring, and it clearly is a problem with the forecast,” Bowring said. “We would like to see a more detailed explanation of what it is in the forecasting process that has led to persistent over-forecasting.”
Day-ahead Scheduling Reserve Update
David Kimmel, PJM senior engineer, reviewed preliminary proposed changes to the 2021 day-ahead scheduling reserve (DASR) requirement during a first read. He said the numbers may change slightly when the measure is brought for final endorsement in November.
The DASR is the sum of the requirements for all zones within PJM and any additional reserves scheduled in response to a weather alert or other conservative operations. It is the sum of the three-year average of under-forecasted load forecast error (LFE) and the three-year average of eDART forced outages.
Kimmel said the preliminary 2021 DASR requirement is 4.78%, slightly lower than the 2020 requirement of 5.07%. He said the number comes from the LFE component of 2.18% and the forced outage component of 2.6%.
Stakeholders will be asked to endorse the changes at the next MRC meeting. The final 2021 DASR value will be incorporated into Manual 13 changes and be implemented in January.
Members Committee
Schedule 9-2 Options Endorsed
Stakeholders unanimously endorsed near-term changes to PJM’s administrative rates as recommended by the Finance Committee.
PJM recovers its operating expenses through Schedule 9 of the Tariff. CFO Lisa Drauschak, who reviewed the proposed changes, said 90% of Schedule 9 revenue is tied to actual load multiplied by a transmission factor, while the rest is connected to transactional activity.
The transactional FTR billing volume, which has increased 97% since 2011, is tied to Schedule 9-2, Drauschak said. The FTR administration service revenues have “significantly exceeded costs” because of an increase in the volume of FTR bidding activity, she said.
The Schedule 9-2 determinants are significantly higher than the assumptions used to build current stated rates, Drauschak said, which has led to the imbalance of revenues and expenses.
PJM is proposing to refund the excess collections over a “rolling 12-month period, based on service category net revenue.” The RTO is recommending an amendment of the Schedule 9 refund mechanism to allocate the excess collections. (See “Schedule 9-2 Options,” PJM MRC/MC Briefs: Sept. 17, 2020.)