By Rory Sweeney

VALLEY FORGE, Pa. — Stakeholders at last week’s Market Implementation Committee meeting denied four proposals to revise PJM’s rules on evaluating designated market paths for energy sales coming into and out of the RTO, indicating a preference for status quo.

Tim Horger of PJM and John Dadourian of Monitoring Analytics, the RTO’s Independent Market Monitor, presented proposals, along with Steve Kelly of Brookfield Renewable and Ruta Skucas from the Financial Marketers Coalition. The proposals differed on how strictly they would monitor scheduled transactions and the amount of leeway or consideration that companies would receive to demonstrate that questionable transactions were appropriate. (See “Stakeholders Battle PJM, Monitor on Market Path Alignment,” PJM MIC Briefs: Jan. 10, 2018.)

“Monitoring Analytics really thinks there needs to be an enforceable rule,” Dadourian said.

“We think the IMM and PJM are going a little too far. We don’t want to throw the baby out with the bathwater,” Kelly said. “We do agree with PJM and the IMM that intentionally breaking a transaction up into separate components to conceal the true source and sink should be defined as illegitimate activity and it should be repriced, so we’re definitely aligned on that matter.” However, Brookfield argued that companies should be allowed 10 days to prove their transactions are “legitimate” before they are resettled.

Skucas, representing a joint proposal from the FMC and American Electric Power, argued that there isn’t any data proving the existence of the issues the rule change is supposed to prevent. The proposal would exempt any transactions that are at least eight days long and would monitor activity at the company level rather than combining activity from all companies within a parent holding company.

AEP’s Dana Horton said that’s the reason his company signed on to the proposal.

“We have both regulated and unregulated subsidiaries in our corporation and we follow some strict policy guidelines on not communicating between the two, so the one side does not know trading positions on the other side, and this proposal from PJM would lump them together with no way of knowing we’re in violation until after the fact,” he said, adding that PJM’s plan wouldn’t offer a way to review and explain the issue.

Dayton Power and Light’s John Horstmann agreed.

“I think it’s a legitimate question. … You may put two and two together long before any entity within a single large corporation will [because of FERC’s code of conduct rules], and potentially punish them even though they didn’t even know the combination of transactions created a problem. I haven’t heard how we’re going to address that, other than we’re going to send you to FERC because you should have known better. It’s not that easy,” he said.

Horger presented an alternative proposal that would focus only on daily and hourly transactions and exempt large corporations like AEP that have legal separations between their affiliates.

Skucas and Monitor Joe Bowring agreed that the alternative proposal unnecessarily included a reference to possible referrals to FERC.

Carl Johnson, representing the PJM Public Power Coalition, also voiced concern about companies inadvertently breaking the rules.

“We’re setting up a set of circumstances where market participants really couldn’t know that they’re going to be tripping violations,” he said. “While we completely get why the sham scheduling should be addressed, we don’t want to support a set of rules that make it [that] you just get caught and you have no idea what you did.”

Bowring said companies would know exactly what activity they should avoid.

“There would be a list and you would know what the list is,” he said. “It’s up to individual companies to monitor their own trading activity, and if they can’t do that, it’s not a problem with the rules; it’s a problem with their monitoring.”

“Or it’s a problem with the way the rules are set up,” Johnson interjected.

Bowring said it was “odd” that companies’ inability to monitor their overall activity is being offered as a reason to not have a rule against manipulation.

“We still have concerns with this whole construct that we’re setting people up to fail and get resettled,” Johnson said.

All four proposals failed to reach the necessary voting threshold of 50% to be considered at the Markets and Reliability Committee. The FMC’s came closest with 44% in approval.

Stakeholders then discussed if there’s any benefit to continued discussion to work toward consensus, but Citigroup’s Barry Trayers said stakeholders appear to be at an “impasse.” Skucas said there needs to be data to support the issue, but Bowring said the activity has been suppressed in recent years because the regulatory risk associated with a joint statement from the IMM and PJM that made it clear that such activity was manipulative.

“The alleged data is not going to show that problem because it’s being suppressed,” he said.

“If the problem has been suppressed, then why are we doing this?” Skucas responded.

“Apparently we’re not,” Bowring said.

Stakeholders then voted 69% in favor of retaining the status quo, and PJM staff said they would recommend closing the issue.

FTR Focus

Several items at the MIC meeting focused on financial transmission rights. Exelon’s Sharon Midgley presented a problem statement and issue charge to address her company’s concern with what it found to be an 18-fold increase in FTR forfeitures since a FERC decision in January 2017 required rule changes that PJM implemented several months later. Monitoring Analytics’ Howard Haas said he has not seen evidence of the issues identified in the problem statement. The proposal will be up for endorsement at next month’s meeting.

Direct Energy’s Marji Philips criticized PJM’s handling of remapping FTR paths when one of the nodes involved is eliminated. Philips said her company was presented with the issue several months ago and instead of finding an “electrically equivalent” substitute, PJM permitted them to terminate the FTR. She said other RTOs — specifically highlighting NYISO — find an equivalent.

“We think you ought to find an electrical equivalent, and coming back saying you can’t is not acceptable,” she said. “To some extent, I analogize this to a property right. We paid for it.”

Exelon, Vitol and DC Energy made the case for why long-term FTRs are beneficial to the market and should be retained. The presentation was in response to a proposal by the Monitor to review whether the products, which are available for each of the next three planning years or a combination of all three, are contributing to returning congestion revenue to load as intended.

Philips defended the Monitor’s proposal, saying that traders in her company profit off the product but also are concerned that “it may be wrong.” The products are far enough in the future that they’re “a joke from a modeling standpoint” and “not based on reality.”

“The reason that we continue to support the investigation is because … the right thing long term is to figure out whether these instruments are in any way impacting liquidity and revenue associated with [auction revenue right] and FTR allocations,” she said. “We participate because there’s a market out there and other people are participating in it and it’s not illegal and it’s perfectly sanctioned. But … we’re not sure that it’s right that we should be allowed to participate if at the end of the day we are impacting revenues that rightfully belong to customers or opportunities to get revenues that belong to the customers, and that’s our dilemma.”

PJM’s Chantal Hendrzak said the next step is to consider interests and design components.