WILMINGTON, Del. — Just a month after approving changes that PJM and its Independent Market Monitor felt stripped away important market protections, the Markets and Reliability Committee approved new revisions to reinstate them.
The new revisions are similar to an amendment the Monitor and PJM had proposed for the original changes developed by Citigroup Energy. The amendment never received a stakeholder vote, however, because Citigroup’s proposal passed the MRC in November with enough support to avoid considering alternatives. (See “PJM, IMM Partner on Capacity-Replacement Revision,” PJM Market Implementation Committee Briefs.)
At issue is how quickly after a bid clears an Incremental Auction that the bidder can take credit for the purchase and flatten its position. Citigroup’s Barry Trayers said the change was necessary to allow his company to reconcile its books sooner and avoid excessive credit requirements.
PJM said the change to Manual 18 widened a loophole that allows participants to arbitrage price differences between the BRA and IAs by reselling the replaced capacity. The IMM had filed a complaint with FERC on the change, which several stakeholders credited for convincing them to reconsider their initial support.
The revisions were approved by a sector-weighted vote of 4.39 out of 5, winning near unanimous support from all sectors except for Other Suppliers. The IMM has since filed to withdraw its complaint with FERC.
The approved revisions included a friendly amendment from Mike Cocco of Old Dominion Electric Cooperative that requires PJM to respond to requests for early replacement capacity within 15 days.
Trayers attempted to defend his original changes, reading from a statement that carefully outlined his intentions and explained that the new revisions would reinstate the obstacles he had attempted to address in the first place. Trayers said an anomaly that can result in double counting of PJM participants’ capacity balances would require them to maintain collateral after they no longer have a position to collateralize. “The proposal here today would reinstate double counting,” he said.
Although Citigroup does not participate in the BRA or IAs, it provides receivables financing by purchasing the offsetting capacity positions and the future payment obligations of PJM, Trayers said. The change approved in November “does not alter the responsibility of all capacity market participants to meet their obligations with true physical capacity,” he said.
Task Force on Uplift Directed to Vote Again
Members directed the Energy Market Uplift Senior Task Force to seek consensus on ways to reduce uplift and address cost allocation concerns by revoting on five proposals that had previously received the most support.
While two proposals on uplift and volatility have received majority support, none of the more than 20 proposals on allocation has received such an endorsement.
Although the task force couldn’t agree on a path forward, PJM’s Dave Anders said the voting process indicated “overwhelming support for making a change.” He said several proposals successfully address the cost allocation issue but met resistance from stakeholders pushing for “backtesting” to determine how each package of changes would affect billings.
Anders said backtesting has been done on a few packages, but it would be “extremely complicated” for others. He urged members to focus on overall market design rather than how much each package is going to cost participants. But some stakeholders said they would oppose any reconsideration of the packages without some sort of backtesting.
Monitor Joe Bowring called for action. “There are some participants who have benefited from a delay, continue to benefit from a delay. It’s time to decide,” he said.
Others, including FirstEnergy’s Jim Benchek and Carl Johnson of the PJM Public Power Coalition, also urged the process forward.
“If we come out of this with nothing else, I would like to go to FERC with something that causes them to take action,” Johnson said. “I’m not sure it matters what we suggest to FERC. What matters is getting a [Section] 205 [of the Federal Power Act] action in front of them.”
After PJM committed to providing as much backtesting as possible, members approved directing the task force to revote on the top five packages. Its next meeting is Jan. 25.
Stakeholders Remain Skeptical of Campaign to Revisit CP
American Municipal Power’s Ed Tatum took to the MRC floor for what he noted was his “fourth first read” on a problem statement calling for a holistic review of PJM’s capacity construct.
For several months, Tatum has represented a coalition of stakeholders requesting a review. His arguments have often been met with ambivalence and a reluctance to tinker with the complex market, which is still incorporating the introduction of Capacity Performance requirements. (See No End in Sight for PJM Capacity Market Changes.)
The coalition took a month off after receiving substantial feedback in October, but Tatum said it decided to return to the MRC after being contact by RTO officials. “We got a call from PJM, and we answered the phone,” he said. The feedback resulted in several changes to the proposed problem statement and issue charge, including transferring the focus from addressing potential state public-policy action to generalized governmental action.
Stakeholders suggested a variety of potential revisions that might help gain their support, including word choice.
“I don’t mean to sound like a broken record … but [consider] approaching this from less of a defensive posture and thinking that the states are out to get us, because I don’t think that’s actually what’s going on,” EnerNOC’s Katie Guerry said. “I don’t think that’s a fair representation.”
James Wilson of Wilson Energy Economics suggested reviewing the ISO-NE and NEPOOL documents founding the Integrating Markets and Public Policy (IMAPP) process, which he said are more focused on trying to accommodate state policies.
PJM’s markets don’t reflect the costs of carbon emissions and some states might want to address it, he said. “To the extent that you accept that [carbon is harmful], then PJM’s markets aren’t efficient because they don’t reflect this externality, and what the states are doing is pushing things toward a more efficient result,” he said.
Others asked the coalition to better define its intended scope. “You’re saying, ‘Take everything we do here every day and change it,’” Gabel Associates’ Mike Borgatti said. “If we’re talking all of it, I’m not sure where I’d want to start.”
The Industrial Customers’ Susan Bruce questioned the problem statement’s timeline. “This is a lot of stuff, and to look at having deliverables [by] the third quarter of 2017, that’s ambitious.” she said.
Tatum acknowledged the additional feedback but expressed concern that the focus seems to be moving away from the proponents’ original intent. He solicited stakeholder help in making supportable revisions, but Exelon’s Jason Barker said the proponents needed to better clarify their goals. “We’re stepping on a slippery slope is all Exelon is saying,” he said.
Stakeholders Balk at Applying Tougher External Capacity Rules to Past Auctions
Stakeholders expressed concern that a PJM proposal tightening eligibility requirements for external capacity resources might violate FERC prohibitions on retroactive ratemaking.
The proposal, which won 68% support in a vote of the Underperformance Risk Management Senior Task, would require external resources to have firm transmission service with rollover rights from their native region and to meet “specific operational and market modeling requirements” to ensure that the resources can deliver energy without imposing congestion costs on PJM members.
Stakeholders expressed concern over PJM’s intention to apply the tightened requirements to capacity resources that have cleared in prior auctions. The proposal would allow existing resources that fall short to either build the transmission upgrades required to qualify under the new rules or to be relieved of their requirements without penalty.
“I think everybody should pay an awful a lot of attention to how this is being handled as far as grandfathering or not grandfathering” resource contracts, said consultant Roy Shanker. Calling it “horrible policy,” he said the proposal creates the potential to disqualify a cleared resource and reduce the amount of capacity cleared without adjusting the clearing price.
Other stakeholders, including Johnson and Barker, joined Shanker in voicing concern that it could result in retroactive ratemaking. They suggested that the rules be implemented going forward from the next BRA.
Bowring opposed “PJM’s continued inadequate approach to ensuring that capacity imports be substitutes for internal capacity resources,” including grandfathering existing long-term contracts with external resources and extending the current exceptions for two additional BRAs.
PJM had indicated it would seek votes of the MRC and Members Committee in January.
ARR Enhancements, Manual Revisions Unanimously Endorsed
Changes to the residual auction revenue rights process received little discussion and were endorsed with one objection and two abstentions. (See “Stakeholders Debate ARR Changes,” PJM Market Implementation Committee Briefs.)
Members also endorsed by acclamation revisions to manuals 10, 13 and 14D that were largely administrative in nature. The Manual 13 changes were the result of a periodic review and included updating the Mid Atlantic Dominion primary reserve requirement from a static 1,700 MW to 150% of the area’s largest single contingency. It includes a note permitting the use of deliverable resources outside of the area to satisfy the requirement.
“It really just aligns it with the [rules for the] RTO,” PJM’s Chris Pilong said.
The Manual 14D changes align it with the planned changes to Manual 13 and include revisions to the fuel-limitation reporting section to update seasonal reporting procedures, add a periodic reporting process and remove details on real-time reporting. The reporting focuses on fuel-inventory and environmental-limitations issues. “The reason for the change to both manuals is to better clarify the reporting process,” PJM’s Augustine Caven said.
— Rory D. Sweeney