MIC: Balancing Ratios and VOM

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The particulars and details surrounding balancing ratios and variable operations and maintenance costs took up most of the discussion at the Market Implementation Committee Meeting April 4.

In addition, in answer to stakeholder questions, PJM also briefly addressed the possible effects of FirstEnergy Solutions’ announcement that it plans to deactivate two nuclear power plants in Ohio and another in Pennsylvania in three years.

Balancing Ratio

The balancing ratio is calculated during a performance assessment interval to determine each capacity resource’s obligation to deliver energy. Prior to each Base Residual Auction, an estimate of future balancing ratios is determined for use in the default market seller offer cap (MSOC).

The Markets & Reliability Committee approved in the fall of 2017 the problem statement and issue charge to discuss a new approach for calculating the default MSOC balancing ratio and to review the Capacity Performance non-performance charge rate. After lengthy conversation, MIC members voted Wednesday to recommend to the MRC that the issue charge be expanded to include discussions about the default market seller offer cap.

On Wednesday, PJM reviewed its draft proposal on a new methodology of determining the default MSOC balancing ratio, along with proposed solution options. The work must be completed in time for implementation for the May 2019 Base Residual Auction.

Monitoring Analytics, PJM’s independent market monitor, presented its views on the issue, which included amending the scope of the issue charge. The IMM felt the aspects of the default MSOC should be in the issue charge’s purview.

Variable Operations & Maintenance Costs

Members endorsed the default variable operations and maintenance costs solution package with 178 in favor, 47 against and seven abstentions. The PJM package finished second with 169 in favor, 57 opposed and three abstentions. Stakeholders did not endorse the Monitoring Analytics package.

In the PJM package, only maintenance costs incurred as a direct result of electric production can be included in a unit’s cost-based incremental energy offer. The default package allows resources to utilize either the PJM package or a default value for variable O&M (page 14) no greater than the new-build data published by the U.S. Energy Information Administration

As part of the VOM presentation, Gary Helm, lead market strategist – Emerging Markets, also provided an update on the 2018 Net Cost of New Entry assessment and the treatment of major maintenance costs in the RPM Quadrennial Review.

Generation Retirements

On the FirstEnergy announcement, Stu Bresler, senior vice president  – Operations and Markets, and Suzanne Daugherty, senior vice president, CFO and treasurer, answered general questions about the deactivations.

Bresler said that PJM is evaluating the impact of the closures on capacity emergency transfer limit (CETL) values, which are part of the planning parameters for the RPM Base Residual Auction. PJM does not yet know if the CETL values will change and believes it is highly unlikely PJM would need to model any additional Locational Deliverability Areas in the upcoming auction as a result of the announced retirements.

Bresler added that any exemption from the must-offer requirements in the Base Residual Auction in May would require a waiver from FERC at this point.

Daugherty said that from PJM’s perspective the announcement does not affect the OVEC’s planned integration; PJM is ready to proceed with the integration on June 1. She said that all PJM members are in compliance with the PJM credit policy.

FERC Order on Energy Storage 

Laura Walter, lead market strategist – Emerging Markets, provided an overview of the Federal Energy Regulatory Commission’s order on Energy Storage. PJM’s filing is due to the commission in December.

There will be special sessions of the MIC to discuss how this will impact PJM’s markets:

  • May 10, 1–4 p.m.
  • June 14, 1–4 p.m.
  • June 27, 1–4 p.m.
  • Aug. 3, 1–4 p.m.
  • Sept. 14, 1–4 p.m.

Other Committee Business

PJM provided updates on changes to the upcoming financial transmission rights credit auction and the regulation filing from the FERC. Monitoring Analytics presented corrections on nuclear plant predictions from its 2017 State of the Market Report.

Endorsement

  • Manual 28: Operating Agreement Accounting revisions (five-minute settlements)

First Readings

  • Conforming revisions to Manual 11: Energy & Ancillary Services Market Operations (FERC Order on Virtual Bidding)

Updates