Wednesday, December 19, 2018

PJM Market Implementation Committee Briefs: Sept. 12, 2018

Concessions of VRR Curve Recommendations

VALLEY FORGE, Pa. — PJM staff have incorporated stakeholder input into their recommendations resulting from the quadrennial review of the variable resource requirement demand curve, the RTO’s Jeff Bastian told last week’s Market Implementation Committee meeting.

pjm mic vrr demand curve

Jeff Bastian | © RTO Insider

Staff have decided to recommend no changes to methodologies for several figures, while reducing the cost of new entry values by several hundred dollars, Bastian said.

He said staff hadn’t come to a decision yet on whether major maintenance costs should be included in fixed or variable operations and maintenance calculations.

“We’ve got to go with one or the other. We can’t have two VRR curves,” he acknowledged.

Review of Fuel Cost Policy Rules

Stakeholders endorsed a problem statement and issue charge to review several parts of the fuel-cost policy (FCP) rules and cost-based offer procedures hashed out last year. Sponsor John Rohrbach, who represents ACES on behalf of the Southern Maryland Electric Cooperative, said he is seeking “some modest discussions” to fix “little mistakes.” The proposal was also sponsored by Old Dominion Electric Cooperative and Panda Power Funds.

Rohrbach suggested that the rules could potentially be improved to determine whether self-scheduled units and zero-marginal cost wind and solar generators need FCPs. Rohrbach also questioned whether generators should have to confirm annually that their FCPs remain compliant and suggested creating a “safe harbor” from regulatory action for “minor” FCP violations and crediting generators for self-reporting potential violations.

It would also address timing issues that can arise when units change ownership.

Transmission Constraint Relaxation Removed

Stakeholders also endorsed new language in Manual 11 allowing transmission constraint penalty factors to set shadow prices for violated constraints. The current practice of relaxing transmission constraints doesn’t let the penalty factors set prices, which results in inefficient clearing prices that don’t reflect market conditions, PJM’s Angelo Marcino explained. The proposal, developed jointly by PJM and its Independent Market Monitor and resulting from an IMM problem statement was also preferred over the status quo.

Marcino said PJM won’t be making changes to market-to-market transmission paths until MISO and NYISO have upgraded their systems, which he said isn’t likely until at least next April.

Exelon’s Sharon Midgley thanked the Monitor and PJM for providing analysis on market impacts that helped her company become comfortable with the proposal.

The Monitor previously determined that in 2017, the revisions would have increased net load payments by $13.5 million, or 0.06%, and increased net generation credits by $10.1 million, or 0.04%. (See “Transmission Constraint Penalty Factor,” PJM Market Implementation Committee Briefs: Aug. 8, 2018.)

Automating Offer Confirmation

PJM’s Susan Kenney detailed the RTO’s plan to automate verification of price-based offers above $1,000/MWh to ensure they don’t exceed the reference cost-based offer on price-based segments.

Kenney said the price-based offers will be capped at $1,000/MWh unless they have the same megawatt blocks, use of a bid slope and fuel type as the referenced cost-based schedule, along with lower start-up offers, no-load offers and incremental energy curve prices per segment. Additionally, the price-based schedule must be updated whenever the cost-based schedule is decreased.

The requirements concerned Gary Greiner of Public Service Electric and Gas, who questioned whether the proposed changes came about as the result of challenges and time delays associated with the new bid verification process or simply for administrative ease.

“I like the flexibility of being able to bid our units in the most creative way we can,” he said, adding that PSE&G wouldn’t support the changes if their only goal is convenience.

Credit Debate

PJM’s Hal Loomis presented a proposal to allow market participants to provide surety bonds as credit for all activity except financial transmission rights portfolios. Surety bonds have different legal language but are “a parallel” to letters of credit the RTO already accepts as collateral, CFO Suzanne Daugherty explained.

However, Monitor Joe Bowring was concerned that surety bonds rely on rating agencies. When staff indicated ratings agencies are reliable, Bowring responded that the agencies’ involvement in the 2008 financial crash “might indicate that’s not quite accurate.”

Daugherty responded that the agencies have undertaken many changes since then. In response to a question from Bowring, she said staff compared best practices with other regional grid operators but didn’t go beyond that to ask other exchanges. She said surety bond issuers used to be too inflexible for energy market needs — requiring an itemized list of claims they might have to pay — but have since become much more “comfortable” with the industry’s needs.

Another “key difference,” she said, is that surety bond issuers, which have a right to investigate and request documentation before paying claims, now generally must pay within 30 days. They previously had no time limit.

PJM’s experience with letters of credit is that they are paid within two days without any investigation, she said, because the banks usually have other collateral. But she said staff does not anticipate a “daunting difference between the two.”

A proposal developed by the PJM Credit Subcommittee would have a $10 million cap per issuer for each member and a $50 million aggregate cap per issuer.

Exelon’s alternate proposal would allow using surety bonds for all credit requirements with a $20 million cap per issuer for each member and a $100 million aggregate cap per issuer. ERCOT and NYISO allow use of surety bonds with lower caps, Exelon’s Midgley said, but higher caps are necessary in PJM because its peak load is twice that of ERCOT’s.

“We see this as a cost-saving opportunity for members” that will also allow diversification, Midgley said. Since both proposals structure surety bonds like letters of credit, Exelon’s proposal would allow surety bonds to be applicable to all market activity, consistent with letters of credit. PJM staff said the proposal was acceptable.

Rory D. Sweeney

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