PJM and the Independent Market Monitor warned last week that they will refer traders who improperly arbitrage price differences between PJM and other regions to the Federal Energy Regulatory Commission for enforcement action.

PJM and the IMM said they will target traders who schedule interchange trades for the last 15 minutes of an hour based on price differentials in the first portion of the hour, a scheme known as “slamming the close.”

Although PJM settles trades based on hourly average prices, it posts prices on a five-minute basis. “Historically we have seen traders submit significant megawatt volumes of transactions only for the last 15 minutes of an hour once they have seen the five-minute prices for the first 20 minutes,” PJM spokeswoman Paula DuPont-Kidd explained.

The PJM-IMM notice said that such “transactions provide no value by way of enhanced market efficiencies or operational benefit and could constitute manipulative, harmful or inappropriate market behavior.”

It also said they would refer to FERC interchange transactions between PJM and external balancing authorities that began at 45 minutes past the hour and end at the top of the next hour, as well as transactions “that would result in the same or similar settlement.”

The notice cited the following examples:

• Modifying the volume of an existing schedule for the last 15 minutes of the hour.
• Scheduling a transaction that begins at 45 minutes past the hour and continues into the next hour but is partially offset by another transaction in the opposite direction that begins at the top of the hour. This would include trades by corporate affiliates.
• Transactions that are scheduled to begin at 45 minutes past the hour and stop at 15 minutes past the top of the next hour if officials believe they were submitted to exploit PJM’s hourly integrated settlements.

2008 Rule

PJM and MISO implemented rules in 2008 to prevent such trading, with PJM requiring that that interchange transactions have a minimum duration of 45 minutes.

But FERC ruled in April that PJM’s minimum duration was inconsistent with Order 764, which required 15-minute energy scheduling intervals with 20-minute notifications. (See FERC Rejects PJM Schedule Rules.) Order 764, issued in 2012, is intended to remove barriers to variable generation sources such as wind.

In 2007, MISO and its Independent Market Monitor determined that nearly 60% of intra-hour schedules between MISO and PJM occurred in the final 15 minutes of the hour. PJM said this resulted in interchange spikes of up to 1,000 MW — increasing uplift charges because of the need to call on combustion turbines to balance the generation swings.

Partial Path Scheduling

PJM and the IMM said they also may refer traders that submit external interchange schedules that appear to have been designed to exploit price differentials and do not result in physical energy flow: “For example, multiple interchange schedules, each of which represents a partial schedule that does not reflect the full physical energy path, or schedules that are in the opposite direction of a portion of a larger transaction that involves multiple Balancing Authorities so as to ‘cancel out’ the physical flow that would otherwise be caused by a portion of the larger transaction.”

Traders who believe they have “a bona fide commercial rationale” for any prohibited transactions should discuss the issue with PJM and the IMM beforehand, they said.