VALLEY FORGE, Pa. — Stakeholders at last week’s Market Implementation Committee meeting overwhelmingly endorsed PJM’s proposal for revising how it calculates balancing ratios while also rejecting several competing proposals.

PJM’s proposal received 0.88 in favor, surpassing a 0.5 threshold in the sector-weighted vote. Stakeholders also preferred it to the status quo, voting 0.69 in favor of the new proposal.

The proposal, known as Package A, would calculate the balancing ratio used in the default market seller offer cap (MSOC) and nonperformance charge rate (PPR) formulas by averaging the balancing ratios from the three delivery years that immediately preceded the capacity auction. For years that don’t have at least 30 hours of performance assessment intervals (PAIs), the actual number of PAIs would be supplemented with estimated balancing ratios calculated during the intervals of the highest RTO peak loads that do not overlap a PAI. PAIs are five minutes apiece.

Some stakeholders like the proposal because it is straightforward and maintains the same number of PAIs used in either the MSOC or the PPR. However, others argue the calculation overestimates the likely number of PAIs, which leads to an artificially high MSOC. Such conditions led Independent Market Monitor Joe Bowring to conclude last week that the clearing prices in May’s Base Residual Auction were higher than they should have been. (See related story, IMM: PJM 2018 Capacity Auction was ‘Not Competitive’.)

“This all turns on your belief that 30 hours is a reasonable number [for PAIs]. I don’t believe that. … I would say it’s pretty clearly not a reasonable number,” Bowring said.

“We don’t have any technology that can solve that problem [of accurately predicting the number of PAIs], so we’re left with what is a reasonable number to put in there,” PJM’s Adam Keech said.

“The 30 hours is definitely an issue for the consumer advocate offices I’ve talked to,” said Greg Poulos, executive director of the Consumer Advocates of the PJM States.

Stakeholders have been debating the issue for months. (See “Balancing Ratio,” PJM Market Implementation Committee Briefs: July 11, 2018.)

PJM’s Pat Bruno announced that staff planned to abandon a second proposal, Package B, unless a stakeholder offered to sponsor it. Dave Mabry, representing the PJM Industrial Customer Coalition, agreed to do so. The proposal would calculate the balancing ratio in the same manner as Package A but would also estimate an expected number of PAIs for the delivery year using data from the prior three years. That estimate would be inserted into the MSOC and PPR formulas.

Each formula would include a floor of PAIs, but they would differ: five hours for the MSOC and 15 hours for the PPR. That difference concerns stakeholders, who argue the numbers need to be the same for the formulas to maintain their mathematical relationship.

“We don’t share PJM’s thoughts that they have some problems at FERC with the” formulas, Mabry said in sponsoring the proposal. American Municipal Power’s Steve Lieberman seconded it, and it received 0.09 in favor.

Additional proposals from Exelon and Calpine differed with PJM on the PAI calculations for the formulas. Calpine’s would floor both at 10 hours and calculate a number based on the past 10 years of data. Exelon’s would use a probabilistic model to look forward. Both would keep constant the number of PAIs used in the two formulas.

“We think it’s illogical to have different assumptions for those calculations,” Exelon’s Jason Barker said.

“The heart of our proposal was to get the expected amount of performance assessment [intervals] to match. It didn’t make sense to us [to have them not match], and I don’t think it would make sense to FERC,” Calpine’s David “Scarp” Scarpignato said.

Scarp withdrew his proposal in favor of PJM’s Package A. Exelon’s received 0.36 in favor.

“I am more in favor of fixing the immediate problem of the” balancing ratio, Scarp said.

“You can’t fix [the balancing ratio] without addressing the problem on a consistent basis,” Bowring said.

A proposal from the Monitor, which mirrored Package B except that it had floors of just five hours for either formula, received 0.02 in favor.

Quadrennial Review of VRR Curve

Stakeholders endorsed a proposal from Scarp on revisions for PJM’s quadrennial review of the variable resource requirement (VRR) curve in its Reliability Pricing Model capacity market construct. Several other proposals, including one endorsed by PJM, were rejected by stakeholders.

Despite the result, all four proposals will be up for consideration at the August meeting of the Markets and Reliability Committee meeting. Stakeholders had made that request long before the vote in an attempt to overcome the influence of companies with multiple affiliates, which can each vote separately at lower committees.

Scarp’s proposal largely mirrored PJM’s, except that it maintains the current combustion turbine configuration as the curve’s reference technology; the RTO had planned to change it to a newer model. It also maintained the curve’s current calculation, while PJM and the other two proposals would have shifted it 1% left. The shift was part of revisions recommended by the Brattle Group, who were hired by PJM to analyze the curve. (See “VRR Curve Update,” PJM Market Implementation Committee Briefs: July 11, 2018.)

PJM’s proposal received 0.39 in favor.

A proposal from the Monitor agreed with PJM on updating the reference technology, but it differed on several other factors. That proposal received 0.1 in favor.

A proposal from the D.C. Office of the People’s Counsel sought to use a combined cycle unit for the reference technology and otherwise largely mirrored the Monitor’s proposal. It received 0.1 in favor, as well.

Fuel Cost Policy

John Rohrbach of ACES, representing the Southern Maryland Electric Cooperative, presented a proposed problem statement and issue charge to review the first year’s performance of the new fuel-cost policy rules and determine if any improvements can be made.

The proposal was also endorsed by Old Dominion Electric Cooperative and Panda Power Funds. The group hopes to have any potential revisions to the current policy identified by April 19 to target a June filing at FERC. Any potential alternatives to the current policy that are identified would need to be ready for consideration by the fall to target a FERC filing in the fourth quarter.

Transmission Constraint Penalty Factor

PJM and its Monitor have developed a joint proposal to revise how the transmission constraint penalty factor is utilized. PJM’s Angelo Marcino explained that the current process uses “constraint relaxation” so that the penalty factor doesn’t set shadow prices. This “masks” transmission shortages in the market. The proposal would remove constraint relaxation and allow the $2,000/MWh penalty factor to set prices as appropriate.

The proposal received so little reaction that PJM suggested canceling the next meeting of the group overseeing the issue, which stakeholders approved.

After the meeting, PJM posted online an analysis from the Monitor on the potential impact of the proposed revisions. The Monitor found that in 2017 the revisions would have increased the balancing market in the aggregate by $10 million.

— Rory D. Sweeney