MIC Hears Progress on FERC Orders

The way PJM and its stakeholders will develop compliance language for several orders from the Federal Energy Regulatory Commission dominated the Market Implementation Committee meeting Dec. 14.

PJM presented on two aspects of the FERC’s Order 825, on price formation, and an additional update on FERC Order 831, on energy offer caps. PJM also updated stakeholders on the June 17 FERC compliance order addressing fuel cost policy updates.

Order 825

The first Order 825 presentation was on the five-minute settlement intervals. PJM is conducting an in-depth review of tariff language changes for a compliance filing on Jan. 11, 2017.

PJM is proposing language to more clearly describe settlement processes. The changes cover topics such as the calculation of charges and credits for energy, ancillary services and transmission congestion and losses.

The second Order 825 presentation was a new proposal on the shortage pricing operating reserve demand curve. Stakeholders will be able to provide additional solution options for consideration. The committee will be asked to endorse a proposal in January.

FERC Order 825 directs PJM to invoke shortage pricing as soon as a reserve shortage is detected in real time, rather than waiting until the shortage is forecast for a sustained period of time, as is current practice.

PJM believes changes to the operating reserve demand curve are necessary in tandem with that change in order to avoid adverse pricing and operational outcomes associated with pricing minor shortages at the existing $850 megawatt-hour penalty for reserve shortages.

The proposal adds a permanent small second step to the demand curve. PJM said this will better reflect the lower reliability concern of small reserve deficiencies and create better price signals prior to when reserves are less than the requirement.

PJM plans to file the operating reserve demand curve changes in a Section 205 filing in March, separate from the Order 825 compliance filing.

Order 831

PJM presented revisions  on the FERC’s Order 831, which it issued on Nov. 17, 2016; the order revises its regulations to address incremental energy offer caps.

The order requires PJM to cap each resource’s incremental energy offer at the higher of $1,000 per megawatt-hour or that resource’s verified cost-based incremental energy offer and cap the verified incremental energy offers at $2,000/MWh when calculating locational marginal prices.

Adam Keech, executive director – Market Operations, said one of the keys to compliance with this order is figuring out a process to implement and manage the timing of offer verifications. PJM may adopt a multi-phased approach depending on the implementation of the fuel cost policy proposal.

The rule’s effective date is Feb. 21, 2017 and PJM’s compliance filing is due May 8, 2017.

Fuel Cost Policy

The committee reviewed additional revisions to Manual 15: Cost Development Guidelines, regarding fuel cost policies. The revisions were based on discussions at the November Markets and Reliability Committee  meeting. The MIC approved the original revisions at its November meeting. The revisions are contingent on approval of PJM’s compliance filing with the FERC related to hourly offers and the fuel cost policy approval process.

Other Committee Actions

The committee also looked at new joint PJM-Independent Market Monitor language in Manual 18 that will establish rules regarding non-physical replacement resources in the capacity market. This would prevent the same megawatts from being sold several times in the same auction year.