FERC on Friday accepted revisions to PJM’s tariff and Operating Agreement that temporarily remove transmission constraint penalty factor (TCPF) rules in Virginia’s Northern Neck peninsula (EL22-26, ER22-957).

The peninsula, which encompasses Lancaster, Northumberland, Richmond and Westmoreland counties, is normally served by three transmission lines: a 230-kV line from Fredericksburg, a 230-kV from Lanexa-Dunnsville and a 115-kV line Harmony Village. But as part of a transmission upgrade project approved in 2020, PJM placed the Lanexa-Dunnsville line on outage at the beginning of the year.

That immediately created price fluctuations of the TCPF to its default rate of $2,000/MWh in the real-time energy market. PJM on Jan. 31 told FERC that the TCPF rules were creating “unjust and unreasonable energy market rates” for consumers on the peninsula.

The RTO also said the price fluctuations contributed to the default in January of Hill Energy Resource & Services, which had portfolio positions in the financial transmission rights market in the congested Dominion zone. (See PJM Weighs Options on Hill Energy FTR Default.)

TCPFs provide price signals to incent more supply or demand response. But the Northern Neck has a “few relatively small” combustion turbines, PJM told FERC, and load has not “responded significantly enough.” The line outage has resulted in “repeated instances” when no actions can relieve the transmission constraint on the other two lines, causing real-time energy market prices to oscillate between the offers of the CT plants and the TCPF of $2,000/MWh, even in the early morning hours, when behind-the-meter solar resources located on the peninsula are usually enough.

“PJM has shown that under the specific circumstances in the record, the transmission constraint penalty factor is not achieving its intended purpose in the Northern Neck peninsula and is resulting in an inappropriate price signal that establishes high prices without a commensurate benefit,” the commission said. “We therefore agree that it is just and reasonable to stop applying the transmission constraint penalty factor in the Northern Neck peninsula for a limited time.”

The RTO said the situation is expected to continue throughout the life of the project until its completion in December 2023, resulting in “significant increases in costs to load,” without an “amendment to the existing transmission constraint penalty factor rules.”

To solve the pricing issue, PJM proposed setting the transmission line limit “at a level that ensures the offers of the resources being used to control the constraint are reflected in the congestion price in lieu of applying a transmission constraint penalty factor.”

The RTO also proposed providing “regular informational filings” to the commission regarding congestion on the peninsula and to work with stakeholders on reforms to the TCPF rules if a similar situation happens in the future.

PJM requested an effective date of Feb. 1, 2022, one day after the date of its filings, because “recalculating energy market settlements is labor intensive, especially over an extended period of time.”

Protests

Several stakeholders protested PJM’s proposed changes.

Chicago-based hedge fund Citadel argued that PJM failed to demonstrate the existing TCPF rules were unjust and unreasonable. The company said PJM recorded recent scarcity pricing on the same path in August and December of 2020 and August 2021 and did not demonstrate how customers were harmed during those events and did not raise concerns at the time of those events. Citadel said there were 784 real-time intervals of prices reaching $2,000/MWh during the previous outages on the line, which “did not prompt PJM to make an emergency filing.”

DC Energy also said the outages in 2020 and 2021 created “substantially similar conditions on the remaining facilities serving Virginia’s Northern Neck” and argued that “emergency measures to eliminate the scarcity pricing signal were not justified in those circumstances and they are not justified now.”

Citadel also argued that “PJM should focus on ways to accelerate new generation development in this location as opposed to creating uncertainty around existing, market-based price signals.” The company said more than 700 MW of new solar, battery, and solar-battery facilities are planned to come online in the peninsula during or shortly after the period of the transmission outage.

Appian Way said that, because this case involves the Hill Energy default, PJM “may have responded with an excessive and unwarranted level of political sensitivity due to the historical context of the GreenHat” Energy default of 2018.

The commission said that while PJM has an existing process to temporarily relax the TCPF, the existing provisions “do not contemplate the unique scenario presented here.”

“Based on the evidence in the record, we find that PJM’s continued application of the transmission constraint penalty factor to congestion in the Northern Neck region resulting from the Lanexa-Dunnsville-Northern Neck line outage will not produce the intended short-term or long-term responses and, instead, will only result in higher costs to ratepayers without a commensurate benefit,” FERC said.

The commission said it agreed with PJM that new generation resources sufficient to relieve the constraint “could not reasonably be expected to be sited, constructed and complete the PJM interconnection process before December 2023.”

FERC also disagreed with Citadel’s argument that PJM failed to provide enough evidence for its proposal. The commission said PJM provided LMP data for the Northern Neck on Jan. 14, as well as for the period Feb. 1-14. The data were “sufficient to demonstrate the link between high prices and the transmission constraint penalty factor.”

The commission also disagreed with DC Energy’s and Citadel’s assertions that past incidences of high prices in the same area of the Dominion zone “demonstrate that PJM’s current tariff is not unjust and unreasonable.” It said the findings were “grounded in the unique circumstances” in the proceeding.

It directed PJM to submit an informational filing updating the commission on congestion patterns within 90 days of the date of the order and every 90 days after until the Lanexa-Dunnsville line upgrade is complete. The RTO was also encouraged to “consider modifications to its analyses of and planning for transmission outages to prevent such occurrences in the future.”

Danly Dissent

FERC Commissioner James Danly provided the lone dissent on the order, saying he disagreed that PJM met its Section 206 burden to demonstrate the existing transmission constraint penalty factor tariff rate is unjust and unreasonable

“As best I can make out, the high prices required by the tariff in the face of an unresolvable constraint are both too high for PJM’s liking but are simultaneously an insufficient incentive for anyone to do anything about it,” Danly said. “I am suspicious that this is a case of scarcity pricing being allowed in a market tariff only until it actually occurs, and then it must be eradicated. Markets cannot work when high prices that occur by design are disallowed in practice.”

Danly said it “does appear” that there may not be a short-term solution to the pricing issue, but he said he was “skeptical” that three weeks was a sufficient amount of time to make the determination. He said he was also concerned by the “regulatory uncertainty” making the change could cause.

“I cannot imagine how an existing generation resource in PJM can remain in business given the frequency of changes the commission repeatedly imposes on these markets, all tending to reduce prices for existing generation,” Danly said. “Today, we reduce price again, demonstrating to everyone that the mechanisms we put in place to harness market forces will be abandoned when they work as planned.”