ARR/FTR Market Task Force Proposal
Members endorsed a PJM and joint stakeholder proposal at last week’s Market Implementation Committee meeting to address the RTO’s auction revenue rights (ARRs) and financial transmission rights (FTRs).
The proposal, which was worked on at the ARR/FTR Market Task Force, was endorsed with 244 “yes” votes (84%), surpassing the necessary 50% threshold to move on for a vote at the Markets and Reliability Committee. In a separate vote asking if stakeholders prefer the proposal over the status quo, the proposal received 247 “yes” votes (93%).
Three other proposals presented for a non-sector-weighted vote at the MIC failed to reach the 50% threshold to be considered for endorsement at the MRC. An endorsement vote at the MRC will face a sector-weighted vote on the issue.
Brian Chmielewski, manager of PJM’s market simulation department, reviewed the PJM/joint stakeholder proposal, saying it was “strongly driven” by the findings of a report developed by London Economics International (LEI), a consultant hired by the RTO to conduct a “holistic review” of the ARR/FTR market.
LEI was hired on the recommendation of the “Report of the Independent Consultants on the GreenHat Default,” which called for an outside expert to review PJM’s FTR market and other PJM markets to evaluate the risks and the benefits of rule changes. (See “PJM Seeking Consultant on ARR/FTR Task Force,” PJM MIC Briefs: May 13, 2020.)
Comparison of FTR auctions across several RTOs/ISOs. | London Economics
Chmielewski said the PJM proposal aimed to consider the LEI recommendations and address concerns raised by the Independent Market Monitor and stakeholders regarding the ARR/FTR market. He said the proposal also sought to maintain the consultant’s conclusion that the existing FTR product is “reasonable and generally achieving the intended purposes” of serving as a financial equivalent to firm transmission service and “ensuring open access to firm transmission service by providing a congestion-hedging function.”
PJM’s proposal was broken into three separate areas as recommended by LEI, Chmielewski said, with an ARR track for “equity,” an FTR track for “efficiency,” and a transparency track for “simplicity.”
Brian Chmielewski, PJM
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Chmielewski said the ARR section was the main part of PJM’s proposal, and “far and away” the most time was spent speaking about the equity area and the allocation of rights. He said the ARR section was designed to answer a primary concern that the ability for some load to “efficiently hedge congestion costs can be deteriorated at times” when a “misalignment” occurs between the allocation of ARRs and congestion charges paid by load.
Some of the main features of the PJM proposal include a guarantee of 60% of network service peak load for each load-serving entity (LSE), Chmielewski said, which is meant to “protect zonal native load hedging ability with additional up-front capability.” He said the proposal also expands the source/sink availability for ARRs so that they “align with any source/sink that is available for bid in the annual FTR auction.”
Market Monitor Joe Bowring reviewed the IMM proposal, which only garnered 40 votes in favor (14%). Bowring said the purpose of the ARR/FTR design is to return congestion payments to the load that pays congestion.
Congestion is an overpayment by load, Bowring said, and 100% of that overpayment should be returned to load. Bowring disagreed with the LEI recommendation that load should be satisfied with receiving 50% to 75% of what is owed to load.
Greg Poulos, executive director of the Consumer Advocates of the PJM States, said he will present the IMM proposal at the MRC on behalf of the advocates as an alternative if the PJM/joint stakeholder proposal fails to be endorsed.
Erik Heinle of the D.C. Office of the People’s Counsel reviewed the group’s proposal, which was identical to the PJM proposal except that 100% of the surplus allocation was given to ARR holders. The OPC proposal received 95 votes in favor (34%).
Jau-Jia Guo of American Electric Power reviewed the company’s proposal that called for a commitment to implement a more “granular” ARR/FTR product design, including quarterly peak and off-peak ARR products. The AEP proposal received 57 votes in favor (21%).
The PJM/joint stakeholder proposal will now go to the MRC for endorsement.
Energy Efficiency Add-back Endorsed
Stakeholders endorsed the PJM/IMM proposal addressing the energy efficiency (EE) add-back in Reliability Pricing Model (RPM) auctions.
The proposal, which called for modified language to section 2.4.5 of Manual 18 to reflect revisions to the EE add-back method, was endorsed with 208 “yes” votes (90%). Members also endorsed changes to the status quo with 207 votes in favor (90%).
Jeff Bastian, senior consultant with PJM’s market operations, reviewed the joint PJM/IMM proposal addressing the calculation of the EE add-back mechanism. Members unanimously endorsed an issue charge presented by the Monitor at the August MIC meeting. (See “Energy Efficiency Add-back Issue Charge Endorsed,” PJM MIC Briefs: Aug. 11, 2021.)<img src="https://rtowww.com/wp-content/uploads/2023/06/140620231686784167.jpeg" data-first-key="caption" data-second-key="credit" data-caption="
Jeff Bastian, PJM
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Bastian said the EE add-back mechanism is applied to capacity auctions to prevent the “adverse reliability impact” associated with double-counting EE as both a capacity resource and a reduction in the forecasted peak load. Bastian said the current method of determining the add-back megawatt quantity applied to a Base Residual Auction does not require it to match the megawatt quantity of EE resources that clear in that auction.
The add-back quantity in a BRA will normally exceed the cleared quantity, Bastian said, resulting in an artificial increase in the clearing price. The proposal rewrote language in Manual 18 to permit PJM to calculate the EE add-back in the capacity market clearing so that the total EE add-back megawatts offset the total cleared EE megawatts in the BRA.
Bastian said the solution “introduces an iterative approach into the auction clearing process” so that the EE add-back megawatt quantity applied to an RPM auction matches the megawatt quantity of EE resources cleared in the auction.
Bastian said PJM is seeking final endorsement at the Oct. 20 MRC to have the manual language in place for the 2023/24 BRA. PJM is currently asking FERC for a delay of the BRA, pushing the date from Dec. 1 to Jan. 25. (See PJM Proposing 2-Month Capacity Auction Delay.)
Start-up Cost Offer Development
Nicole Scott and Tom Hauske of PJM provided a first read of two proposals addressing start-up cost offer development worked on in the Cost Development Subcommittee, while some stakeholders questioned the scope of the changes coming from the subcommittee.
Scott said the issue charge for start-up costs was developed in the CDS for review and possible modifications to Manual 15. Scott said some of the key work activities included the calculation of start-up cost-based offers for steam units, combustion turbine units, combined cycle units and diesel units and a discussion on the consistency of start-up cost parameters with the start-up and notification times.
The CDS developed two proposals for consideration, Scott said, the first a joint PJM/IMM proposal and the second a clarification proposal from stakeholders. Scott said the two proposals agree on most of the start-up cost changes to Manual 15, but they differ around the issues of start-up costs, start fuels, station service and additional labor costs for combined cycle units.
Hauske said the PJM/IMM proposal calls for providing an equation to calculate start-up cost, addressing station service for non-combined cycle units, more clarification around the start maintenance adder and a definition for equivalent service hours.
Hauske said the main issue the PJM/IMM package attempted to address is the discrepancy in Manual 15 on how start-up costs are calculated. He said the manual currently allows combined cycle units to include fuel cost after a generator breaker closure and the synchronization to the grid in their calculation of start-up costs that other unit types like steam and nuclear cannot utilize.
The PJM/IMM proposal revises Manual 15 calculations for start-up cost, start fuel and station service to be consistent for all unit types, Hauske said, and it only includes costs prior to first breaker closure and after the last breaker opens.
Tom Hyzinski, GT Power Group
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Tom Hyzinski of GT Power Group provided additional information of the clarification proposal. Hyzinski said the proposal was meant to offer an alternative to the PJM/IMM proposal that tries to maintain the status quo but contains some clarifications to the manual language to highlight current practices.
Hyzinski said the PJM/IMM proposal does more than just clarify language by “making a substantive change” to the way start-up costs are recovered for combined cycle units. He said the clarification proposal attempts to explain the current actual practice with combined cycle units without making significant manual updates.
Calpine’s David “Scarp” Scarpignato said he was under the impression the CDS was mainly focused on minor clarifications like the Manual 15 revisions regarding the incremental and no-load energy offers endorsed at the September MIC meeting. (See “Manual 15 Revisions Endorsed,” PJM MIC Briefs: Sept. 9, 2021.)
Scarpignato said the manual changes presented in the PJM/IMM proposal are “extremely substantive.”
Dave Anders, PJM’s director of stakeholder affairs, said the CDS has a charter approved by the MIC and can take on work within the scope of the charter. Anders said the subcommittee simply needs to let the committee to which it reports know what is being discussed.
Scarpignato said he would still like to see the issue come through the MIC where there is more stakeholder participation. He requested that a second first read be conducted at the November MIC to go over the issues more thoroughly with the committee.
“I know you guys understand it, but it’s pretty detailed for the rest of us,” Scarpignato said.
Bowring said he wanted to see the issue proceed for a vote at the November MIC since it has been “thoroughly reviewed” at the CDS, but he said he wouldn’t be opposed to having more discussion.
“I think people understand it; some just don’t like it,” Bowring said. “It is complicated, but lots of stuff at PJM is complicated.”