VALLEY FORGE, Pa. — PJM’s plan for addressing uplift remains on schedule, and the final two phases of its three-phase solution will be filed by the end of this week, staff announced at Wednesday’s Market Implementation Committee meeting.
The two remaining phases will be filed separately. In May, after four years of debate, stakeholders endorsed the final phase of the plan despite opposition from financial marketers. The filings address allocation of uplift and limit the locations where financial traders can place bids. (See PJM MRC OKs Uplift Solution over Financial Marketers’ Opposition.)
Bruce Bleiweis of DC Energy asked if PJM had any indication whether newly installed FERC Commissioner Robert Powelson would recuse himself from the decision. Powelson previously chaired Pennsylvania’s Public Utility Commission. PJM staff said they had no information on that.
Debate Continues on Intraday Offers
The results were mixed for the Independent Market Monitor’s proposed revisions to the intraday-offer procedures, which go into effect on Nov. 1.
Stakeholders endorsed a joint proposal from PJM and the Monitor on changes to Manual 11 that would allow reapplication of the three-pivotal-supplier test after offers are updated. However, they declined the Monitor’s recommendations on other Manual 11 changes to verification of energy offers and endorsed PJM’s plan. (See “PJM, IMM Agreement on Intra-Day Offers Seen as ‘Massive Change,’” PJM Market Implementation Committee Briefs: Sept. 13, 2017.)
The Monitor’s Catherine Tyler argued that PJM’s proposed energy-offer screen, which is being implemented to comply with FERC Order 831, fails to incorporate information from fuel-cost policies and other cost inputs. The offer-verification changes for demand response also don’t follow the rules already in place for generators, she said.
“I think there’s a real concern that if there aren’t more details in the manual, if there’s no [offer] cap, then an astronomically high offer could go through, and PJM has no process to stop payment without going to FERC.”
The Monitor, she said, is concerned that the process is not standardized. However, stakeholders hesitated to apply a standard before seeing how the process works in the real world.
“I think we have a learning curve, and while I don’t disagree with the value of a standard, I would suggest that having a standard without any history isn’t productive,” CPower’s Bruce Campbell said.
PJM’s proposal on verifying offers passed with one vote in opposition and 21 abstentions.
Give Them Some Credit
PJM is proposing to use modeling to improve its financial transmission right credit requirements. By incorporating the RTO’s PROMOD planning simulations, credit requirements can take into consideration the impacts of future transmission upgrades, PJM’s Hal Loomis said. Because system upgrades reduce congestion, they also decrease the value of nearby prevailing-flow FTRs.
The plan would analyze the impact of upgrades on FTR bid and cleared credit requirements. PJM’s threshold for analysis would be upgrades with at least a 10% impact on constraints with at least $5 million in congestion. Just three of the 22 system upgrades placed in service for 2017/18 fit those criteria.
PJM is proposing two implementation alternatives. The first, which staff prefer, would incorporate the PROMOD simulation results into the publicly available FTR credit calculator prior to the FTR bid window. While the RTO would only publish the difference between the simulation and historical values for each node, Loomis noted that some stakeholders have complained it would provide market intelligence.
“We know transparency is important to our members. It’s also important to FERC,” Loomis said.
The second option, which resembles the current undiversified adder process, would have PJM issue incremental collateral calls between the close of each FTR bid window and publication of the cleared auction results. While this doesn’t give away information, it could require posting additional collateral within a day. Those who miss the deadline would have their bids removed.
PJM hopes to implement one of the processes in time for the 2018/19 annual FTR auction next spring and apply it to all existing positions. Members with a credit shortfall will be restricted in their FTR transactions during a 12-month “transitional cure period” in which they won’t be at risk of default but can only make transactions that reduce their credit exposure. No collateral returns will be allowed until the shortfall is cured.
“If there’s a shortfall, we want members to cover the shortfall,” Loomis said.
A poll in PJM’s Credit Subcommittee found strong support for all facets of the proposal, including the RTO’s preference for posting the nodal differences, Loomis said.
DC Energy’s Bleiweis suggested better alternatives are available, adding that “PJM should keep its views of the future confidential.”
Instead, he said, the PROMOD data should be supplemented with third-party forecasts.
“One of the issues we had with the poll is we weren’t able to answer the questions we wanted to answer,” he said. “There are experts out there who do congestion forecasting. PJM should work with them.”
He made the argument during a presentation on his company’s concern that the rule changes would still allow participants to hold substantial FTR portfolios while posting little or no collateral. DC recommends a minimum collateral threshold, along with scaling capitalization requirements for increasingly risky positions. Bleiweis also recommended a mark-to-market test in which PJM would collect additional collateral based on the current market value of the purchaser’s FTR portfolio.
He acknowledged that these recommendations would “absolutely” increase DC Energy’s credit requirements.
“We think it’s critical to protect the market,” he said. “The worst thing that can happen to the FTR market is another default. We had one in 2008.”
PJM Chief Financial Officer Suzanne Daugherty asked stakeholders to address the issue sequentially rather than with an omnibus solution. “We’d like to get this one known exposure addressed,” she said.
Bleiweis acknowledged PJM’s progress on the issue and agreed to take his proposal to the subcommittee in exchange for Daugherty’s commitment that it would be addressed soon.
“Over the last 13 years, we’ve made a lot of progress on credit issues. We’re not going to stand in the way,” Bleiweis said.
Earlier in the meeting, stakeholders also endorsed proposed changes to credit requirements for regulation resources to allow credits to offset charges daily. The existing process settles credits monthly but charges weekly, which can create a collateral requirement within the month despite the existence of a much-larger outstanding credit. Travis Stewart of Gabel Associates, which identified the issue and advocated for the change, thanked PJM for the effort.
Monitor’s FTR Initiative OK’d Despite Stakeholder Reservations
Stakeholders were uncharacteristically divided on whether to allow discussion of concerns raised by the Monitor on the long-term FTR market but eventually assented to it. Monitor Joe Bowring presented a problem statement and issue charge on FTRs with terms of one or three years, which he said have a very concentrated ownership and don’t accurately reflect the prices in corresponding annual FTR auctions. He suggested there was a lack of interest in the product.
“It has become increasingly clear that the three-year FTR product sold in the long-term FTR auction should be eliminated,” the Monitor said in its State of the Market report for the first half of 2017.
Bowring and Vitol’s Joe Wadsworth sparred over the Monitor’s goals and perception of the problem. Wadsworth asked if Bowring’s interests were in improving the efficiency and liquidity of long-term market transactions or simply abolishing FTRs. Bowring responded that the question is whether long-term FTRs are helping or hurting the efficiency of markets overall.
“That’s not a very clear answer to me. Take that as constructive [criticism]. Take it as nothing more than that,” Wadsworth said.
Rather than a lack of interest, there are impediments, like regulatory uncertainty, that make many participants nervous about transacting years in the future on energy products in general, he said. He later added that Vitol supports open dialogue and wouldn’t vote against having a discussion.
Marji Philips of Direct Energy said it was interesting that Bowring’s proposal was “being picked apart … which tells me that everyone picking it apart is afraid of losing money.”
“We don’t see any harm” in the discussion, she said.
The measure received 64% approval with a vote of 108-60 and 53 abstentions.
OPSI, PJM at Odds over PRD
State regulators are at odds with PJM over requirements for demand-side resources, including price-responsive demand (PRD) bids.
PJM says PRD bids should be available year-round, the same as generation resources under Capacity Performance rules. But the Organization of PJM States Inc. (OPSI), which speaks for the state regulators, argues they should be allowed to make seasonal contributions.
The dispute came to a head during PJM’s presentation of its proposed PRD rule changes to match CP requirements. PJM’s Pete Langbein outlined three proposals. The RTO’s proposal would extend annual requirements developed for DR to PRD. A second proposal would limit the triggers for assessing CP penalties to just penalty assessment intervals. The third, from DR-participant Whisker Labs, would extend the existing PRD rules to the winter, create a summer-only product and allow it to be aggregated with a winter resource for an annual CP resource.
OPSI Executive Director Greg Carmean made a statement developed from a resolution OPSI sent to PJM’s Board of Managers on Oct. 9 urging the grid operator to create market mechanisms that enable participation of summer-available demand resources.
Bowring said that if PRD bids are meant to be price responsive, they should be energy resources rather than capacity.
The issue has existed since PJM implemented its CP construct in response to the 2014 polar vortex. CP requires that all resources have year-round availability and includes penalties for those that fail to respond during emergencies.
OBF Changes
PJM’s Tim Horger announced that PJM has alerted NYISO that it plans to end the controversial 400-MW operational base flow (OBF) through northern New Jersey on Oct. 31, 2019.
The OBF was created in May in response to Consolidated Edison ending its decades-old agreement with Public Service Electric and Gas to “wheel” 1,000 MW from upstate New York through PSE&G’s northern New Jersey territory and into New York City. Amid stakeholder complaints about its necessity, PJM decided to retain 400 MW of that flow as the OBF.
PJM now says it won’t need the cushion to manage energy flows in the area once the Bergen-Linden Corridor project is complete. Per the grid operators’ joint operating agreement, PJM provided NYISO two years’ notice of the change, which NYISO acknowledged.
OVEC Joining
The Ohio Valley Electric Corp. (OVEC) is planning to join PJM. OVEC’s Scott Cunningham said the company plans to join PJM as its own transmission zone, despite having no load to service.
OVEC, which is headquartered in Piketon, Ohio, owns 2,200 MW of generation capacity but will have no load after a U.S. Department of Energy contract ends sometime before 2023. The company was created in 1952 to service roughly 2,000 MW of load from a uranium enrichment plant near Piketon operated by the Atomic Energy Commission.
DOE, which took over operation of the plant after the commission was abolished in 1974, ceased operations there in 2001. The department ended the 2,000-MW contract in 2003 but maintains a load that can be 45 MW at its maximum but is generally less than 30 MW. In months with mild weather, it is less than 20 MW, Cunningham said.
OVEC’s two coal-fired generating plants are already pseudo-tied into PJM, and its eight “sponsors” are allowed to sell their portions of the output into PJM’s markets. OVEC has no distribution and does not belong to an RTO, although its reliability coordinator function is performed under an agreement with MISO.
The generation would become internal to PJM following membership, eliminating the pseudo-ties, American Electric Power’s David Canter said. AEP is one of OVEC’s sponsors.
PJM’s Asanga Perera said there might be some auction revenue rights associated with the membership.
— Rory D. Sweeney