PJM and its Market Monitor still don’t agree on how the Financial Transmission Rights forfeiture rule should be applied. But they have at least reached consensus on how it has been applied to date.

PJM Vice President of Market Operations Stu Bresler presented the Markets and Reliability Committee Thursday with a description of the practice as currently applied by the monitor on increment and decrement transactions.

MRC Vote in May

The MRC will be asked in May to approve a manual change documenting the monitor’s current application of the rule, and a problem statement to determine how it should be interpreted in the future.

The rule is intended to prevent participants from submitting virtual bids that boost the value of their FTRs.

PJM discovered only recently that it disagreed with the criteria by which the monitor has been determining whether a company’s virtual bid is “at or near” the delivery or receipt buses of its FTR. PJM does the billing and has the authority to use its own determination if it disagrees with the monitor’s.

The monitor has been applying the penalty based on the net impact of virtual bids, triggering its application in less than one-tenth of 1% of trades.

PJM proposed a different calculation under which companies would lose any profit for an FTR if 75% or more of the energy injected or withdrawn by a virtual bid is reflected in a constrained path between FTR source and sink.

Market Monitor Joseph Bowring says PJM’s method would eliminate the rule’s value in policing gaming.

Stalemate

The Market Implementation Committee on March 6 voted in favor of PJM’s calculation method over the monitor’s. But the MRC rejected the PJM proposal March 28, leaving the RTO with no documentation for the practice.

Incorporating Volumes

Pat Sunseri, of Twin Cities Power, LLC, Thursday reiterated his request that PJM consider the volume of transactions in its application of the rule so that it doesn’t prevent legitimate hedging. “I think it makes a lot of sense to look at the volumetric issue,” Bresler agreed.

Carol Smoots, counsel to the Financial Marketers Coalition, said the rule should be reviewed by a task force reporting to the Market Implementation Committee rather than by the MRC, as envisioned in the Market Monitor’s proposed problem statement.

“A lot of very good trading doesn’t occur” because of the current interpretation, Smoots said. “That’s harmful to the market.”