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November 5, 2024

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PJM Reconsiders Adders on Cost-Capped Generators

PJM will evaluate whether it’s time to end extra compensation for generators that frequently run on cost-based offers under market power mitigation rules.

The Market Implementation Committee approved an issue charge by Market Monitor Joseph Bowring to review the “adders” for frequently mitigated units (FMU). Bowring said the adders are no longer needed because of the introduction of the capacity market in 2007 and changes to scarcity pricing rules in 2012.

FMUs were allowed adders in 2006 to ensure that they cover their avoidable costs. The adders are graduated: Generators that are cost capped for 60% of their running hours receive an adder of either 10% of their cost-based offer or $20 per MWh; those capped for 80% or more of their hours can receive $40 per MWh. Similar rules apply to “associated units,” which share physical and economic characteristics to FMUs.

Bowring acknowledged that less than 1% of megawatts sold last year were offer capped. But Bowring said that because the affected units are concentrated in load pockets “it can have more significant impacts locally.” Of the 133 units eligible for FMU or AU status in at least one month during 2012, 25 (19%) were FMUs or AUs for all months.

The monitor won support for the issue charge after agreeing to modify it so that it won’t be pursued until the fourth quarter; some members wanted time to evaluate the impact of scarcity pricing during this summer. Bowring also agreed to remove from the issue charge his conclusion that the reasons for the creation of the adders no longer exists.

Dave Pratzon, who represents generators, said he believed the issue would prove more complicated and time consuming than Bowring suggested. “I think this issue has a lot more hair on it,” Pratzon said.

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CIP Audit Has No Findings

ReliabilityFirst Corp. completed its Critical Infrastructure Protection (CIP) audit of PJM last week with no findings. The audit covered 29 standards, Mark Kuras, PJM Senior Lead Engineer for NERC and Regional Coordination, told the Planning Committee.

Kuras said auditors had seven recommendations, most related to a lack of clarity in PJM’s manuals regarding control room operators’ responsibility for reliability functions.

They also indicated that the transmission line naming conventions used by transmission owners could result in violations in a future audit, Kuras said. NERC names lines based on voltage levels and the substations at either end; transmission owners identify lines by numbers.

“It’s an easy fix for PJM but there will be a lot of pushback from TOs,” Kuras said.

Kuras also said PJM and NERC are still in settlement discussions over violations resulting from the 2010 CIP spot check and Order 693 audit.

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New Modeling OK’d for Combined Cycle Plants

PJM will change the way it models combined cycle generators in its least cost dispatch.

The Operating Committee voted overwhelmingly last week to switch to a “composite” model. This will allow combined cycle owners to bid their units in multiple configurations, including duct firing, that reflect the flexibility of the units (i.e., 1×0, 1×1, 2×1, 3×1). Each configuration will have its own parameters (i.e., start time, minimum run time and startup cost).

Under PJM’s current modeling, combined cycle operators must bid as either a combustion turbine or steam unit.

Dave Pratzon, who represents generators, said the change was necessary because combined cycle units have become more prevalent and are more often setting prices. “To my clients the status quo is not a reasonable alternative,” he said.

John Citrolo, of PSEG, also supported the change, saying the current model doesn’t properly compensate generators for combustion turbines starts and stops. “It models the units’ parameters more accurately, gives PJM [dispatchers] more flexibility and compensates owners more fairly,” he said.

The committee chose the composite model over an alternate “additive (pseudo)” option. The additive option would allow combustion turbines to be modeled as separate market units, with the steam turbine modeled as part of the combustion turbines. Pratzon said the additive model was “just a Band-Aid” and was inferior to the composite model.

The proposed change, which will be considered next by the Markets and Reliability Committee, will require software development by PJM’s vendor, Alstom, and changes by generators. The changes are not expected to be implemented before summer 2014.

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Manual Changes to Implement Electronic Notification System

The Market Implementation Committee approved changes to Manuals 1 and 18 Wednesday to implement an automated process that will allow Curtailment Service Providers to provide operational data to — and receive dispatch instructions from — PJM.

The new Load Response System (eLRS) process replaces the current manual methods, which rely on email and spreadsheets.

Reason for Change: PJM needs operational data to estimate the real time energy reductions likely in response to a PJM dispatch of emergency demand response resources.

Impact: The automated data should allow PJM more accurate dispatch of Emergency DR resources and help determine those resources eligible to set the real time LMP.

CSPs will be required to contact their emergency DR resources to determine their load reduction capability (e.g., outages at the facility; reductions based on high expected prices, peak shaving or contract provisions). The updates are to be done monthly in October through May, daily in June through September and hourly when under a Max Emergency Generation Alert or Action.

The real time dispatch instructions will be used in emergency and synchronized reserve events. CSPs will have a communication link through eLRS that will poll PJM once a minute for event notifications and instructions and provide PJM acknowledgement that the instructions have been received. For companies without an information technology staff, PJM will provide a software client.

The real time dispatch system will be available in the PJM “sandbox” May 16 for testing, prior to the production deployment May 22.

Resources:

PJM contact: Jack O’Neill

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PJM May Bar Some Financial Players from Trading – UPDATE

By Rich Heidorn Jr.
PJM Insider

PJM’s announcement last week that it may deny trading privileges to as many as 55 small market participants provoked both praise and criticism from financial traders.

PJM said that it would bar members from most trading if they are unable to qualify for the Dodd-Frank exemption approved by the Commodity Futures Trading Commission last month.

“This is good for the market,” said Pat Sunseri, of financial trader Twin Cities Energy, LLC. Sunseri said PJM’s move will eliminate severely undercapitalized companies whose strategy is “hit it big or leave the market holding the bag.”

Attorney Carol Smoots, who represents the Financial Marketers Coalition, called PJM’s response an overreaction, although she said her coalition members won’t be affected.  “This approach will close the market out to smaller companies,” she said. “The market isn’t protected by making sure a company is of sufficient size; big companies can cause huge defaults. The market is protected by reasonable collateral policies.”

 “Appropriate Persons”

The CFTC agreed March 28 to largely exempt from its regulations Financial Transmission Rights, day ahead and real time energy transactions, forward capacity transactions and reserve regulation transactions, sales that are already regulated by the Federal Energy Regulatory Commission. However, the CFTC said the exemption did not apply to financial market participants that cannot qualify as “appropriate persons” under the Commodity Exchange Act (CEA).

“We can’t be convinced that if we transact with a party not meeting the exemption that we’re not transacting a swap” under Dodd-Frank rules, PJM General Counsel Vince Duane told a special meeting of the Markets and Reliability Committee Thursday.  Being deemed a swap dealer could subject PJM to CFTC reporting requirements, he said.

PJM Chief Financial Officer Suzanne Daugherty said that about 55 financial traders that have not provided PJM with financial statements may fall outside the exemption.

CFTC’s definition of appropriate persons includes banks and broker-dealers regulated by the Securities Exchange Act, futures traders regulated under the CEA and other companies with a net worth exceeding $1 million or total assets exceeding $5 million.

The commission order also exempted those participating “in the generation, transmission, or distribution of electric energy” but declined to extend the exemption to all those participating in RTO and ISO markets.

The only parties not exempt in RTOs, the commission said, are “market participants that can demonstrate neither the financial wherewithal nor the requisite business activities and congruent expertise to qualify as appropriate persons under” the Commodity Exchange Act.

Daugherty said PJM will give financial traders not otherwise exempt the opportunity to provide financial statements establishing their qualification for the exemption under the $1 million/$5 million threshold.

Duane said those not meeting the CFTC exemption would still be able to take transmission service under the PJM tariff. “It primarily will affect those trading in FTRs and the energy market,” he said.

Reaction Varied

Twin Cities’ Sunseri said PJM’s move will help eliminate irresponsible financial traders.

“I don’t want people with $50,000 cash slinging huge megawatts [trading positions] that that could blow up any day of the week,” Sunseri said. “Without a company having adequate funding to bear losses, it delegitimizes our sector and promotes a negative stereotype from other market members.”

Smoots, however, said PJM’s action is unnecessary and anticompetitive. She took issue with Duane’s conclusion that allowing trading by companies not covered by the exemption might subject PJM to regulation as a swaps dealer. “There’s nothing in the order to suggest that,” she said.

The Dodd-Frank Wall Street reform act encouraged the CFTC’s jurisdictional handoff by inserting a section in the Commodity Exchange Act underscoring FERC’s authority over RTO transactions. But it is unclear whether CFTC’s action will end its turf skirmishes with FERC because the agency retained its right to police RTO trades under its anti-fraud and anti-manipulation authority.

Next Steps

The CFTC included several conditions in its exemption, including a requirement that PJM maintain the confidentiality of any subpoenas the commission issues for information about PJM members. PJM will amend its Operating Agreement to comply.

PJM will need to modify its Operating Agreement and tariff to bar the non-exempt participants from trading. Other regional transmission organizations and independent system operators have said they will take similar action, Duane said. CFTC issued a “no action” letter giving PJM and other regions until Sept. 30 to comply with its conditions.

PJM will brief members on its response at an MRC conference call April 18and at the Members Committee Information Webinar April 22. It will seek approval of the proposed OATT and OA changes from the MRC April 25 and the Members Committee on May 16. Assuming a filing with FERC in late May, the changes would take effect by Sept. 30.

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MC/MRC Final Approval: ARR Modeling Revised

The Markets and Reliability and Members Committees approved modeling changes for the annual Auction Revenue Rights (ARR) allocation to reflect the return of transmission facilities to service after outages.

The current tariff states that if any ARR requests made during stage 1A of the allocation process are not feasible because of transmission outages, PJM will allow the allocation by increasing the capability limits of the binding constraints. The increased limits are then used in subsequent ARR and Financial Transmission Rights allocations and auctions for the planning year.

During the ARR allocation for the 2013/2014 planning year, PJM found infeasibilities on some paths due to planned transmission outages in the annual process that were not scheduled to be out of service every month of the planning year. Continuing the increased ratings in subsequent auctions would overstate transmission capability, exacerbating FTR underfunding.

The changes to section 7.4.2(i) of the Operating Agreement will exclude increased capability limits in monthly auctions for months in which the transmission facility is not out of service.

The MRC agreed to waive the normal 60-day review period so that the changes can be implemented in time for the May monthly balance of planning period FTR auction.

PJM contact: Tim Horger

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MRC Action: Peak Load Contribution Review

The Markets and Reliability Committee approved a request from the Capacity Senior Task Force for clarification regarding its issue charge on Peak Load Contribution (PLC) measurements of demand resources.

The issue charge directed the group to explore the interaction of PLC with end-user cost assignments and DR providers’ revenues from capacity market auctions.

“We had trouble figuring out what the problem was” because of the wording of the problem statement, said task force chair Sarah Burlew.

Aaron Breidenbaugh, of EnerNoc, opposed expanding the scope of the issue charge. Stability “has been sorely lacking” in demand response, he said.

David Scarpignato, of Direct Energy Business, said he would like more transparency on how PLCs are calculated by electric distribution companies.

The revised problem statement was approved 2.64-2.36. It breaks the issue into three problems:

  • Customer PLC Risk: Customers that want to be fully interruptible but don’t know their PLC three years in advance of the Base Residual Auction (BRA)
  • PLC Accuracy: Customer load changes are not incorporated in PLC until approximately one year later
  • Review accuracy and transparency of PLC measurements and — if changes need to be made — consider potential alternatives.

The revised problem statement will be assigned to the Demand Response Subcommittee because the task force is slated to sunset. The subcommittee was asked to decide by Dec. 1 whether any changes are necessary and to make such changes by July 2014 to allow time for FERC approval before the 2018 Base Residual Auction.

PJM contact: Sarah Burlew

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MRC Action: Calculating Capacity Values for Intermittent Resources

The Markets and Reliability Committee approved a problem statement to protect intermittent generators (e.g., wind) from being assigned artificially depressed capacity values as a result of curtailments directed by PJM.

PJM began excluding all curtailed hours in its capacity calculations for the summer 2012 capacity auction. The removal of the curtailed hours can still hurt a generator’s capacity value, however, because curtailments generally occur during periods of high generation. While the curtailments often last only 10 minutes, PJM systems are programmed to remove any hour from the calculation that includes a curtailment, regardless of its duration.

The issue was assigned to the Planning Committee. The group will analyze the magnitude of the issue and evaluate alternate calculation methods and tariff and manual revisions required to implement them.

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Tariff Changes OK’d for East Kentucky Integration

The Members Committee approved tariff and agreement changes to allow integration of the East Kentucky Power Cooperative into PJM effective June 1. The changes, which affect the tariff, operating agreement, reliability assurance agreement and transmission owners’ agreement, are similar to those made for the recent integrations of American Transmission Systems, Inc. and Duke Energy Ohio and Kentucky.

The Markets and Reliability Committee also heard a first read on changes required to Manual 13: Emergency Operations.

The 16-member cooperative, which joined PJM as an Other Supplier in 2005, estimates it will save almost $132 million over the next decade by taking advantage of PJM’s economies of scale and generation diversity. The winter-peaking system (2,500 MW) will increase PJM’s generation capacity by 2.5% and transmission net­work by 4%. (See earlier story.)

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Consumer Advocates Seek Director

Consumer advocates in PJM are looking to hire a director to represent them before the RTO and the Federal Energy Regulatory Commission.

The Consumer Advocates of PJM States (CAPS), which was formed last year, issued a request for proposals for an individual or firm to represent them in stakeholder meetings and to coordinate communications and strategy. April 8 is the deadline for submitting a response.