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PJM plans to propose shortage pricing rule changes

The PJM Interconnection plans to file tariff revisions to conform with the Federal Energy Regulatory Commission’s shortage pricing order, perhaps thereby increasing reserve requirements but possibly decreasing the risk of volatile operations, stakeholders learned Thursday.

FERC Order 825 directs independent system operators to trigger shortage pricing for any interval in which a shortage of energy or operating reserves is apparent, which conflicts with PJM’s current rules, which only trigger shortage pricing when a sustained period of shortage of energy or reserves is foreseen, Adam Keech, PJM executive director of market operators told the PJM Markets and Reliability Committee Thursday.

FERC directed implementation of Order 825 by May 11. PJM sought to postpone implementation until PJM implements five-minute settlements on February 1, 2018, but FERC has not yet responded. Lacking a quorum FERC may not respond in time to forestall implementation by May 11, Keech said.

“We asked for notification from them by the end of this month,” Keech said.

Currently, when PJM triggers shortage pricing, the penalty factor is $850/MWh, with the volume equal to the economic maximum of the single largest contingency. During shortage periods, the penalty factor sets the market clearing price.

PJM staff has been concerned that the large penalty factor “could overstate the severity of system conditions” that would “likely result in operational volatility if participants respond heavily to these transient events.”

Therefore, PJM proposes revising the volume to which the $850/MWh penalty factor is applied in its operating reserves demand curve from the economic maximum of the single largest contingency to the actual output of the single largest contingency, Keech said.

In a second step in the current ORDC, applies a $300/MWh penalty factor to any additional megawatts of primary reserves (those that can be brought online within 10 minutes of dispatch) needed beyond the economic maximum of the single largest contingency.

PJM now proposes a new second step to apply a $300/MWh penalty factor for 190 MW of reserve shortage needed beyond the actual output of the single largest contingency.

PJM settled on 190 MW as the average synchronized reserve deficit plus one standard deviation. The $300/MWh would continue to be applied to primary reserves required beyond the second step volume.

Synchronized reserve resources must be able to be brought online within 10 minutes of dispatch, and have equipment to be electrically synchronized to the system.

The ORDC tariff language would be filed under Section 205 of the Federal Power Act, which means that it would be presumed acceptable by FERC, barring proof that they are against the public interest.

On another FERC-related subject, Jacqui Hugee, PJM associate general counsel, reviewed work on establishing pro forma pseudo-tie agreements and relevant revisions to PJM’s joint operating agreements and tariff language.

According to the North American Energy Standards Board, a pseudo-tie is “a special type of intra-balancing authority transaction whereby the generator of a BA physically resides outside the contiguous boundaries of the BA.”

The pro forma pseudo-tie agreement was slated for a vote Thursday, but it was not quite ready, Hugee said, as PJM hopes to reach some accord over the issue with its primary pseudo-tie partner, the Midcontinent Independent System Operator.

MISO proposed a pro forma pseudo-tie agreement in tariff revisions at FERC in February to cope with a growing number of pseudo-ties and increasing distances from its seams to generation and loads seeking pseudo-ties.

PJM’s implementation of capacity import limits that provided an exemption for external pseudo-tied generation with long-term firm transmission service triggered a jump in requests to pseudo-tie generation into PJM. Market pseudo-tied volumes rose from 1,966 MW in June 2015 to 5,668 MW in June 2016.

On Tuesday, PJM filed a protest at FERC against MISO’s pseudo-tie proposal, arguing that aspects of the proposed pro forma agreement “purport to give MISO unilateral authority to determine how a pseudo-tie out of the MISO [BA] and into the PJM [BA] will be implemented and operated, and unilateral authority to suspend or terminate an existing pseudo-tie out of the MISO [BA] and into the PJM [BA], with no coordination between the two” BAs.

Read full article at Platts