By Rich Heidorn Jr.
PJM Insider
Wilmington – PJM’s proposal to limit Up to Congestion (UTC) bids stalled at the Markets and Reliability Committee Thursday, as members called for a broader review of the bidding technique.
PJM proposed the cap because high bid volumes can make it difficult for the RTO’s day ahead markets software to reach solutions. Although the proposal was supported by financial market players who are the predominant users of UTC, other members balked, calling for a broader review of the impact of UTCs, which have grown in popularity since their creation in 2000.
The committee voted to defer consideration of the cap for two months to allow an in-depth discussion of their impact on the PJM markets.
UTCs were created as a way to hedge the exposure to price differentials from the source to the sink of physical energy deliveries. Trading volumes have increased since late 2010, when PJM eliminated a requirement that UTC bids include transmission reservations. “What started as a hedge for physical transactions has evolved into a virtual product,” said Stu Bresler, PJM vice president of market operations.
The proposed cap would allow PJM to limit a market participant to 3,000 UTC transactions per day when the RTO believes higher volumes would degrade performance of its day ahead software. PJM already has authority to limit virtual bids but it has never invoked it.
Carol Smoots, counsel to the Financial Marketers Coalition, said her members reluctantly supported the cap to allow PJM flexibility. Smoots said she would oppose UTC changes that shifted costs to her members.
Independent Market Monitor Joseph Bowring, who was among those seeking a delay on the cap, said the review of UTCs should include the subject of cost causation.
Andy Ott, PJM’s senior vice president for markets, supported a brief review to increase members’ understanding of UTCs and how they compare with spread bids. “We don’t see a sense of urgency [for the cap] we saw a couple months ago,” he said, noting that bid volumes had fallen recently.
Ott said PJM needs to have a broader discussion on cost allocation that will include UTCs and virtual transactions and might result in such transactions being allocated a fixed fee. But he said that discussion should be handled separately by the Market Implementation Committee. “We can’t have a 10-month discussion on cost-causation,” before enacting the bid cap, Ott said. “We certainly can take a month or two.”
The vote to defer action passed with no opposition and three abstentions. The resolution did not include a reference to exploring cost considerations.
