WILMINGTON, Del. — PJM needs to increase its fees to cover rising expenses and rebuild its diminishing operating reserve, officials told the Members Committee on Thursday.

Staff presented a first reading on five options for revising the administrative rate used to collect fees from members and market participants.

PJM is looking for member approval to increase the rates to $0.41/MWh of load served, up from the current $0.34/MWh. The options presented include a single change to a $0.41 rate, a 2.5% annual increase starting in 2018 through 2023 or an annual $0.01 increase through 2022. The 2017 rate in all options is $0.36/MWh.

A new method is necessary because PJM has been below its authorized operating reserve of $15 million since 2013. Staff had expected to rebuild the reserve to $17 million in 2015. Instead, it saw the reserve fall to $7 million because of lower-than-expected revenues. Although it trimmed expenses by $10 million below budget, to $273 million, it generated revenues of only $269 million.

PJM has changed the way it charges members and market participants several times over the past 20 years.

Before 1999, the RTO charged members a single formula rate based on load served. From then until May 2006, the RTO moved to multiple formula rates based on both load and market activity.

In 2006, PJM added a rider to cover the cost of the Advanced Control Center (AC2), and in 2011 it decreased service category rates by 3%, citing economies of scale. All proposals assume an early retirement of this rider because the debt attached to it will be paid off in September

The Finance Committee is expected to make a recommendation to the Members Committee and Board of Managers at its meeting Aug. 24.

CFO Suzanne Daugherty said she expected the committee to choose an option calling for a 2.5% annual increase from 2018 through 2023, which would restore the reserve to full funding by the end of 2017 and maintain it through 2026.

PJM will return to the Members Committee in September for an endorsement vote. It will then make a filing with FERC with a target effective date of Jan. 1.

(Editor’s Note: An earlier version of this story incorrectly stated that PJM’s expected administrative rate for 2017 will be $0.37/MWh.)

Grid Remains Strong During Recent Heat Wave

PJM canceled maintenance outages for the first time under Capacity Performance rules as the system experienced seven days of hot weather beginning July 21, Mike Bryson, vice president of operations, told the Markets and Reliability Committee on Thursday.

The peak load for the period — 151,882 MW — occurred July 25. That was the RTO’s 13th-highest ever and the highest since July 2011, when PJM set an all-time record of 165,492 MW.

The daily average LMP for July 25 was almost $36/MWh, Bryson said. Forced outages for the period were less than 13,000 MW.

“The transmission system has been very strong on the voltage side,” he said. During the period, however, two 765/345-kV transformers tripped in different parts of the system, causing local congestion.

The Dumont T2 line in Indiana tripped July 21, and the Cloverdale-Joshua Falls line in Virginia tripped July 26 because of storms, Bryson said.

PJM Moves Toward Order 825 Compliance Filing

The MRC approved a problem statement to begin work on compliance with FERC Order 825, which set new rules for RTO settlement intervals and shortage pricing triggers. Staff will begin work at the Aug. 10 Market Implementation Committee meeting to identify and address potential impacts. (See “Members Prepped for Problem Statement on Settlement Intervals, Shortage Pricing,” PJM Markets and Reliability and Members Committees Briefs.)

The order requires settling transactions in the same time intervals they are scheduled, priced or dispatched, along with aligning shortage pricing to work in the same intervals. While PJM already incorporates shortage pricing, staff realized the current system requires changes to ensure pricing signals aren’t unnecessarily erratic. The RTO’s problem statement goes beyond the requirements of the order to address these issues as well.

The original language of the final key work activity didn’t sit well with some participants, who were concerned it might open the door for revising the demand curves rather than simply adjusting the pricing intervals within them. The language was updated prior to approval to read: “Develop a new set of steps within the demand curves to be implemented in the final rule, if necessary.”

The debate went on for nearly an hour, leading PJM CEO Andy Ott to weigh in and assure members that the point was to avoid wild price fluctuations, not to adjust the overall rate structure.

PJM’s plan is to smooth out the pricing signals over time so they only trigger shortage pricing when it’s a trend.

“The look-ahead engine looks out over time, and it has to see the shortage for a persistent period of time before it will pass the indicator over to the [real-time schedule] engine,” PJM’s Rebecca Carroll said.

PJM has only had one incident of shortage pricing in recent memory, on Jan. 6-7, 2014.

Susan Bruce, who represents the PJM Industrial Customer Coalition, supported the focus on shortage pricing. Under the current demand curves, she said, consumers can be charged higher prices for a whole hour for a shortage that might last only five minutes.

Work on Fuel-Cost Policy Updates Moves Ahead

PJM market analysis manager Jeff Schmitt presented a timeline for the days remaining before the RTO’s Aug. 16 deadline for making a FERC compliance filing on its fuel-cost policy protocols.

The Market Implementation Committee held a special meeting on July 27 and has another scheduled for Aug. 4. Schmitt said he hopes to have the language updated prior to the committee’s regular meeting on Aug. 10. He asked that any additional feedback be sent to him.

In June, FERC ruled that PJM “lacks provisions for sufficient review of cost-based offers and could permit a resource to submit inaccurate cost-based offers.” It ordered PJM to add to its Tariff and Operating Agreement a requirement that generators submit fuel-cost policies that are approved by the RTO prior to submitting cost-based offers, including a penalty structure for those that file inaccurate information (ER16-372).

Feedback from the MIC meetings will be used to update PJM’s Manual 15. Schmitt said PJM has asked for a Dec. 1 effective date but that implementation of the new language will be based on when FERC responds.

MRC Endorses Manual Changes

Members unanimously approved the following manual changes:

• Manual 11: Energy & Ancillary Services Market Operations for the Day-Ahead Scheduling Reserve. Adds language excluding resources from the day-ahead scheduling reserve process that cannot reliably fulfill obligations in real time.
• Manual 14C: Generation and Transmission Interconnection Facility Construction. Changes support the inclusion of Order 1000 processes. Since the first reading, the new tie line section has been removed. Discussion on that issue will begin in August.
• Manual 20: PJM Resource Adequacy Analysis. Updates are the result of a periodic review.
• Manual 29: Billing. Clarifications and updates are the result of a regular review.

Manual Changes Clarify ‘Physicality’ of Transactions

MRC members endorsed changes to Manual 18 clarifying the rights and responsibilities involved in auction-specific bilateral transactions. (See “Members OK Clarifications to Preserve ‘Physicality’ of Auction-Specific Bilateral Transactions,” PJM Market Implementation Committee Briefs.)

New PLS Exception Process Offers Flexibility

The Members Committee approved Operating Agreement and Tariff language giving more flexibility to the parameter-limited schedule exception process. (See “More Flexible PLS Process Approved,” PJM Markets and Reliability and Members Committees Briefs.)

— Suzanne Herel and Rory D. Sweeney