Markets and Reliability Committee

Stakeholders Endorse Revised Proposal to Align Energy, Gas Schedules

VALLEY FORGE, Pa. — PJM’s Markets and Reliability Committee last week endorsed a proposal to align the day-ahead energy market commitment cycle with the daily gas nomination deadlines in order to give gas generators more certainty on when they should procure fuel. (See “PJM Presents Electric Gas Coordination Proposal,” PJM MRC Briefs: May 22, 2024.)

The package would time three intraday commitment runs for gas generators, targeted to be commensurate with the three gas nomination deadlines under the North American Energy Standards Board. PJM would attempt to notify any generators picked up during those runs of their commitment before the corresponding NAESB deadline.

The committee initially rejected the proposal, which fell below the two-thirds threshold with 51% sector-weighted support, after stakeholders raised questions around language asking generators to notify PJM of whether they have or plan to procure the fuel necessary to meet their commitments.

After the proposal was rejected by the MRC, members suggested removing the notification provisions, and a second vote approved the package by acclamation.

Paul Sotkiewicz, president of E-Cubed Policy Associates, said the draft manual revisions did not reflect language in the proposal approved by the Electric Gas Coordination Senior Task Force (EGCSTF) stating that the notification process is voluntary, does not carry penalties and is not meant to be punitive if notification is not provided.

PJM’s Brian Fitzpatrick said the language was intended to appear in the manuals and would be added before a vote. He said the notification process was meant to give PJM dispatchers additional insight into the status of the gas fleet.

He also argued that regardless of PJM’s intent, the Independent Market Monitor had said it may view the notification as mandatory and that generators failing to provide their fuel status to PJM could face a referral to the FERC Office of Enforcement.

“We’re faced with this direct threat that it’s voluntary and if we don’t do it, we’re going to get a FERC referral,” Sotkiewicz said.

Monitor Joe Bowring said there had been no threats to market participants. He said that while it was his view at the EGCSTF that the notification should be mandatory, he recognized that the proposal would make it voluntary and stated the Monitor would enforce the rules as written and approved by stakeholders.

“The fact that stakeholders voted to remove any provisions about the notification that generators should provide to PJM about whether they have procured the gas to meet their commitments is surprising,” he said.

Bowring told RTO Insider that part of the misalignment between the electric and gas markets stems from the difference between the daily cycle the gas industry operates on, which starts at 10 a.m., and the midnight starting time for the daily electric market cycle. He argued that proposals drafted by the EGCSTF have sought to shift the risks created by that misalignment from gas generators to load.

While shifting market times to align with the gas cycle would resolve many of the issues, Bowring said generators could also reflect pipeline requirements in their parameters, which would mitigate their risk and provide PJM additional visibility on when resources can operate.

First Read on Expanded ‘Know Your Customer’ Rules

PJM presented a proposal to widen the scope of its “know your customer” (KYC) requirements to include a new “beneficial owners” definition, which would require due diligence checks on individuals who hold 10% of the voting power within a member entity.

The MRC is set to vote on the tariff revisions on July 24, with the Members Committee vote on Aug. 21.

Assistant General Counsel Eric Scherling said the proposal is intended to improve PJM’s understanding of which individuals contribute to the most risk profile of an entity and to align KYC definitions with corporate standards.

The beneficial owner definition is applicable to those who own, control or hold 10% or more voting power of an entity, either directly or together with family members. While the overall KYC design was based on the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) rules, Scherling said PJM determined to use a lower 10% threshold for the beneficial owners definition.

The proposal also requires that PJM conduct background checks on beneficial owners, board of director members and principals of non-publicly traded members. Those entities would be responsible for providing a list of names for each of those categories and government-issued identifications, though the latter does not apply to boards unless requested by PJM.

For publicly traded entities, municipal power authorities and co-ops, only a list of principals, beneficial owners and board members would be required, though background checks could also be requested by PJM.

PJM Chief Risk Officer Carl Coscia said less information is requested for public entities because those data are already captured by Securities and Exchange Commission regulations, and the RTO’s aim is to have members validate that the information is timely and accurate.

Stakeholders questioned whether the proposed definitions could inadvertently capture shift supervisors or staff on real-time desks that have operational control over significant company assets but don’t necessarily make long-term strategic decisions.

Monitor, PJM Present Processes to Enable Multi-schedule Modeling

PJM and the Monitor presented two proposals to revise how the Market Clearing Engine (MCE) selects energy market offers to enable the implementation of multi-schedule modeling. (See “Stakeholders Discuss Path Forward on Multi-Schedule Modeling,” PJM MIC Briefs: June 5, 2024.)

Stakeholders considered both packages last year during a process to determine a methodology for winnowing generator schedules down to the most cost-effective offer forwarded to the MCE. Those discussions resulted in a PJM proposal using a formulaic approach being filed at FERC, which was rejected in March. (See “Stakeholders Endorse Multi-schedule Modeling Solution,” PJM MRC/MC Briefs: Dec. 20, 2023.)

The commission stated that PJM’s proposal would compromise market power mitigation by only considering the cost of market-based offers on the EcoMin parameter, even if that offer would be more expensive than a cost-based offer at higher outputs. The Monitor described the issue as the “crossing offer curves” scenario throughout the stakeholder process and in protests to the PJM proposal at FERC.

During the Market Implementation Committee meeting June 5, PJM’s Keyur Patel said the RTO planned to advance a proposal co-sponsored by it and GT Power Group, which received the second-highest degree of support during an October 2023 vote. The joint proposal retains PJM’s formulaic approach and seeks to address the crossing curves issue by selecting generators’ market-based offers only when they pass the three-pivotal-supplier (TPS) test under nonemergency conditions and select cost-based offers only when a resource fails the TPS test.

A joint proposal offered by the Monitor and GT would replace the formula with having market sellers choose the most economic cost-based offer to forward to the MCE.

Deputy Monitor Catherine Tyler said the formula in the PJM/GT proposal ignores market realities and retains some of the same problems that led FERC to reject the RTO’s original proposal. She argued that the formula would commit dual-fuel generators to operate on less economic fuels when the relative costs of fuels change during the operating day.

Bowring told RTO Insider that he considered a central flaw in PJM’s proposed formula to be that it only considers the highest-cost hours equal to the minimum run time and could therefore select the higher-cost fuel for the entire day rather than recognizing that, for example, gas was cheaper in the morning and oil was cheaper in the afternoon.

“That is not a logical, competitive or least-cost solution,” he said.

Bowring said that his goal is to try to reach a consensus before the next MRC meeting.

Responding to questions about why market sellers might prefer PJM’s formula over selecting from their own offers, GT’s Tom Hyzinski said some participants may prefer to have the RTO make that determination.

The “IMM wants the market participant to pick the schedule. PJM uses a formula to pick the schedule for the market participant. The market participant likely does not want to pick the schedule but would prefer PJM to pick the schedule. [The] IMM has not proposed an alternative formula that either PJM or the market participant can use to make the selection,” Hyzinski said.

Bowring said any market participant can use PJM’s formula, which has been provided in a spreadsheet, to make the choice.

“The generation owner ultimately and appropriately makes the decision about what fuel to burn. The Market Monitor’s proposal provides more flexibility to generation owners, including the option to use the PJM formula if they think that is preferable,” he said.

During the June 5 MIC meeting, Constellation Director of Wholesale Market Development Adrien Ford said her company was concerned about the precedent of PJM reviving past packages after a stakeholder-endorsed proposal was rejected by the commission. She said she may seek to waive the truncated voting rules to allow both proposals to be voted on alongside each other. She added that action would not presuppose Constellation’s position on the two proposals; rather, her concern was retaining options for stakeholders under the unusual situation.

Ford told RTO Insider on July 1 that the company plans to move the PJM/GT package at the MRC’s next meeting.

Consumer Advocates Seek Wider Scope for Deactivation Task Force

The Maryland Office of People’s Counsel and Illinois Citizens Utility Board proposed revisions to the issue charge framing the work of the Deactivation Enhancement Senior Task Force (DESTF) to includes several areas of concern around the future of resource retirements in PJM.

Phil Sussler, of the Maryland OPC, said there are stakeholder processes focused on allowing new generation to clear the interconnection queue faster, proactive transmission planning, responding to localized load growth and thermal generation retirements promoted by economics and government policies, but none of those deliberations are occurring in a coordinated manner.

Clara Summers, of the Illinois CUB, said the advocates’ proposal is not meant to slow any of those discussions, but rather to rework the scope of the DESTF to allow it to take on a wider slate of issues.

“Our effort is really meant to supplement, not supplant, that existing work,” she said.

Several consumer advocates have argued that PJM’s existing stakeholder processes around resource retirements have been scattershot and siloed into subcommittees in a way that prevents holistic solutions.

The expanded key work activities and scope section of the issue charge would include:

• • education on transmission technologies that can resolve transmission violations prompted by deactivations, including grid-enhancing technologies and energy storage;
  • education of the alternatives other RTOs have to reliability-must-run contracts that pay generators to continue operating past their deactivation date;
  • updates and follow-up on any revisions to PJM’s process for transferring capacity interconnection rights, which are being drafted through the Planning Committee; and
  • drafting proposals to establish cost-effective alternatives to RMR agreements.

The out-of-scope section of the issue charge would also be widened to exclude proposals focused on expanding the justifications for entering RMR agreements with generators, particularly for resource adequacy purposes.

First Read on 2 PJM Proposals to Revise Reserve Markets

PJM presented two proposals to enable the RTO to have the 30-minute reserve requirement dynamically change to reflect system conditions without affecting other reserve procurement categories and how deployment signals are conveyed to market participants.

The MRC is slated to vote on the proposals during its July 24 meeting; if endorsed, they will advance to the MC on Aug. 21.

The changes to the reserve requirement definition would shift the 3,000-MW procurement target to a formula selecting the greater of the peak load forecast times the average forecast error and forced outage rate, the primary reserve requirement or the largest active gas contingency.

PJM’s Emily Barrett said the static requirement doesn’t account for the varying risks PJM experiences day to day, which can often lead the reserves that the RTO actually requires to exceed 3,000 MW.

The proposal would allow PJM to increase specific extended reserve requirements without having to scale up all three requirements and over-procure reserves. Barrett said the primary use case would be extending the 30-minute reserve requirement without also having to procure a correspondingly higher amount of synchronized and primary reserves.

Allowing the three to be increased individually would align operational decisions with the markets to reduce out-of-market commitments, PJM’s Kevin Hatch said.

The second package would send reserve deployment instructions through resources’ basepoints as the primary notification that they are being called on to provide reserves. PJM would continue using the existing automatic notifications and all-call signal; however, the basepoint instructions would be considered the starting point for resources’ commitments and the 10-minute window in which they are expected to ramp up.

Members Committee

Stakeholders Elect Sector Representatives to Nominating Committee

The MC elected representatives to the Nominating Committee for each of the five sectors. The committee identifies candidates to serve on the PJM Board of Managers and advances them to be voted on by the MC. The 2025 sector representatives are:

• • Rory Sweeney, of the Northern Virginia Electric Cooperative, represents the Electric Distributor sector;
  • Jordan Nader, of the North Carolina Utilities Commission, represents the End Use Customer sector;
  • Marji Philips, of Rolling Hills Generating, represents the Generation Owner sector;
  • Sean Chang, of Shell Energy North America, represents the Other Supplier sector; and
  • Denise Foster Cronin, of the East Kentucky Power Cooperative, represents the Transmission Owner sector.

In addition to the five sector representatives, three members of the board serve on the committee: two voting members and one non-voting member who serves as the committee chair. The board selected Jeanine Johnson to serve as chair in May, while David Mills and Charles Robinson serve as voting members.