Wednesday, March 20, 2019

FERC OKs PJM Tx Constraint Penalty Factor Changes

By Robert Mullin

FERC on Tuesday approved PJM Tariff changes designed to bring the RTO into compliance with Order 844 by improving market participants’ insight into the use of transmission constraint penalty factors.

“The proposed revisions will provide transparency regarding PJM’s transmission constraint penalty factor procedures and also produce more transparent and appropriate pricing and investment signals that correspond to an underlying transmission constraint,” the commission said in its ruling (ER19-323).

Transmission constraint penalty factors are the values at which security-constrained economic dispatch (SCED) will relax the flow-based limit on a transmission line in order to relieve a constraint rather than redispatch a costly resource.

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Issued last April, Order 844 said that a lack of transparency prevents market participants from understanding how the factors influence LMPs. (See FERC Orders RTOs to Shine Light on Uplift Data.)

In its compliance filing, PJM explained that its current logic for relaxing constraints prevents the penalty factor from setting the marginal value of a transmission constraint, thereby understating the severity of the constraint and producing LMPs that fail to send appropriate price signals to inform generation and transmission investment decisions.

FERC approved PJM’s proposal to remove the constraint relaxation logic from its market operations and allow the penalty factor to set the marginal value for a constraint when SCED “cannot produce a solution that manages the flow on a transmission constraint within the limits of the transmission constraint.”

The commission also found PJM’s Tariff revisions adequately describe how the penalty factor will be reflected in LMPs. The RTO had clarified that the marginal value for a constraint is used as an input for determining LMPs’ congestion component.

PJM also explained it will allow the penalty factor to set the marginal value for a constraint in market-to-market transactions, although it retains the ability to use the constraint relaxation logic at the request of an adjacent RTO.

“PJM states that it expects to use constraint relaxation logic for market-to-market congestion management with Midcontinent Independent System Operator Inc. until the second quarter of 2019, when MISO will update its market clearing engine to allow transmission constraint penalty factors to set the marginal value of the transmission constraint in its markets,” the commission noted.

PJM’s default transmission constraint penalty factor will be $2,000/MWh for real-time transactions within its own boundaries and $1,000/MWh for M2M coordinated transmission constraints on its side of a seam.

FERC also approved PJM’s plan to revise penalty factor values “to reflect persistent system operational or reliability needs, changes in the costs of resources available to relieve congestion, changes to operating practices for managing market-to-market coordinated constraints, and the unique attributes of certain transmission facilities.”

The commission additionally accepted the RTO’s proposal to post adjustments to penalty factor values “as soon as practicable” rather than setting a hard deadline, “in the event that an unforeseen circumstance arises that prevents modified values from being posted within such a deadline.” In doing so, it dismissed the Independent Market Monitor’s argument in favor of a deadline.

FERC also disagreed with the Monitor’s contentions that PJM should not retain the ability to apply its constraint relaxation logic for M2M constraints, as well as its assertion that penalty factor values take into account other system constraints, include RTO-wide reserve penalty factors.

“Establishing the default transmission constraint penalty factor values based on historical evidence, as PJM proposes, ensures that the SCED application considers all physically available dispatch options and available units to resolve binding transmission constraints,” the commission said.

The Tariff revisions take effect Feb. 1.

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