Market Seller Offer Cap Balancing Ratio Fails, Reg Market Fix OK’d

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A proposal to change how PJM calculates the balancing ratio used in the capacity performance default market seller offer cap failed by a razor-thin margin in a sector-weighted vote at the Oct. 25 Members Committee meeting.

The item needed 3.34 out of 5 support to pass; it garnered 3.302.

PJM engaged stakeholders on the issue in June, noting that the Tariff formula to calculate the balancing ratio does not work when no Performance Assessment Intervals (PAI) have occurred during the three calendar years preceding the Base Residual Auction.

The plan would have taken the average balancing ratio of the three preceding years using actual balancing ratios calculated during PAIs. For  any year with fewer than 30 hours of PAIs, the plan would use an estimate calculated during the highest peak loads that do not overlap a PAI.

Following the vote, members questioned whether any further action needed to be taken to devise a path forward.

Stu Bresler, senior vice president – Operations and Markets, said that unless a stakeholder proposes a new problem statement and issue charge, the subject is closed.

Bresler said the proposal would have been a preferred route because PJM has had so few PAIs, and they have been local in nature. But, he said, “Under the Tariff, we can calculate balancing ratios from the PAIs this year.”

Another topic generating discussion at the Markets and Reliability Committee meeting – which went on to be added to the Members Committee agenda – involved regulation market pricing.

Lisa Morelli, manager – Real-Time Market Operations, presented a problem statement, issue charge and proposed stop-gap solution to address what she called a market design flaw. The flaw allows for the regulation market clearing price to be drastically inflated by minimally effective resources, as defined by a very low benefits factor, under certain conditions.

This scenario occurs when a resource with a very low benefits factor clears the market an hour ahead based on a projected lost opportunity cost (LOC) of $0, but when pricing occurs in real time, the resource’s LOC is non-zero. Because the LOC is divided by the resource’s benefits factor, the market clearing price can quickly inflate because the LOC is being divided by a small fractional value in these cases.

From May to August, PJM experienced 80 such intervals, Morelli said.

She presented a realistic example in which just a $5 difference in LOC can create a clearing price of $6,250.

“While this happens infrequently, the results are significant when it does occur, and it could be stopped with a minor stop-gap measure,” Morelli said.

The proposal would limit the benefits factor used in market clearing to 0.1 instead of 0.

Meanwhile, a stakeholder process will be opened next year to review the issue for a permanent fix, along with other regulation market design issues that the Regulation Market Issues Senior Task Force attempted to address in a filing that the Federal Energy Regulatory Commission rejected earlier this year.

While it’s unusual for PJM to propose a solution along with a problem statement and issue charge, which some stakeholders questioned, it is permitted if it is something seen as a simple fix, clarified Dave Anders, director – Stakeholder Affairs.

A motion to defer voting on the solution until the Dec. 6 MRC meeting failed, with just 1.87 out of 5 support in a sector-weighted vote.

By acclamation, with one objection and two abstentions, the MRC endorsed the problem statement and issue charge. The solution also was endorsed in a sector-weighted vote, with 4.09 out of 5 in favor.

At the Members Committee meeting, stakeholders agreed to fast-track the issue. They endorsed the proposed solution by acclamation, with four objections and two abstentions.

Stakeholders unanimously approved a problem statement and issue charge for the Stakeholder Process Super Forum. The work, set to start in January and span six months, is aimed at potential enhancements to the stakeholder process, and would require changes to Manual 34.

On another issue, Bresler announced much progress has been made in collaboration with the Independent Market Monitor on a process that now allows stakeholders to use the IMM’s opportunity cost calculator as an alternative to PJM’s.

Stakeholders deferred until January consideration of related Operating Agreement revisions while PJM and the IMM review changes needed to Manual 15.

Patricio Rocha Garrido, senior engineer – Resource Adequacy Planning, presented to the MRC the results of the 2018 Reserve Requirement Study. The installed reserve margin (IRM) and forecast pool requirement (FPR) are slightly less than last year’s.

For 2018, the IRM was 15.7 percent, compared with 15.8 percent for 2017. The FPR in 2018 was 1.0887, compared with 1.0898 for 2017.

The decrease is being driven by a smaller average unit size – 121 MW in 2018 compared with 129 MW in 2017, he said.

The study results were endorsed unanimously by the MRC. At the Members Committee, the study results were included as part of the consent agenda.

Another issue that was endorsed at the MRC that wound up on the Members Committee consent agenda at the request of stakeholders was Tariff and Operating Agreement updates related to changes to the day-ahead timeline. Members said they wanted to get the changes made as soon as possible in the interest of better gas-electric coordination.

A proposal to better value summer-only demand response resources through the load forecasting process also was vaulted to same-day consideration by the Members Committee after an alternative proposal by EnerNOC was withdrawn.

The issue passed the MRC with 3.48 out of 5 support in a sector-weighted vote. The issue passed the Members Committee with 3.69 support.