PJM will consider relaxing rules for up-to congestion transactions under a problem statement approved last week.
Noha Sidhom, of Inertia Power LP, requested the inquiry, saying that the $50 bid cap and restrictions on the nodes that are eligible are inhibiting use of UTCs as a hedge.
The Market Implementation Committee approved the request over the objections of the Market Monitor’s Howard Haas, who said expansion of the UTC product would be “premature” and should not be considered until UTCs are subject to the FTR forfeiture rule and pay uplift charges.
Issues with UTC Rules
A UTC combines a day-ahead offer to sell energy at a source with a bid to buy the same quantity at a sink. The transaction is only executed if the difference between the Locational Marginal Prices at the source and sink are under a threshold set by the bidder. Current market rules limit such bids to differentials of $50 or less.
The proposed rules also limit such transactions to nodes historically available for interchange transactions, excluding those load buses below 69 kV and buses for generators below 100 MW.
Sidhom said traders are not able to place “price sensitive” bids due to the bid cap and are substituting paths because their preferred paths are unavailable. The bid limit can prevent prevailing flow transactions from clearing on peak days while allowing counterflow bids, causing a risk of a “biased market,” Sidhom said.
The limitations can result in excessive bidding on some paths and prevent asset owning stakeholders from using UTCs to hedge, she said.
Monitor Opposition
Haas said there was no evidence that current rules are impeding the use of UTCs. UTCs represent one-third of injections and withdrawals in the day-ahead market and are on the margin 70% to 90% of the time. UTCs have “a dramatic and influential effect on this market,” he said.
Haas cited an analysis by the Monitor that simulated market results with and without UTC bids for a five-day sample in May. The analysis found that UTCs affect unit commitment and dispatch in the day-ahead market, increase the number of day-ahead binding constraints and contribute to negative balancing congestion. (See Bowring: UTCs Boost FTR Shortfalls.)
In its 2012 State of the Market report, the Monitor called for eliminating UTC transactions or making them responsible for day-ahead and balancing operating reserve charges.
PJM officials disagreed with the recommendation. Instead, PJM requested “a broad discussion of operating reserve costs and allocation methods.”
Sidhom said she did not oppose addressing the Monitor’s concerns. “We’re fine with the FTR forfeiture rule being applied to UTCs. In fact we voted for it,” she said. “I think it’s more a debate between PJM and the [Monitor] that has to be resolved.”
Dave Pratzon, who represents generators, said PJM and the Monitor need to reach agreement on a way to measure the impact of UTCs. He urged inclusion of the measurement issue along with Sidhom’s concerns. “Let’s try and take care of this issue once and for all,” he said.
