UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
Settlement Intervals and Shortage Pricing
in Markets Operated by Regional
Transmission Organizations
and Independent System Operators
)
)
)
)
Docket No. RM15-24-000
COMMENTS OF PJM INTERCONNECTION, L.L.C.
In response to the Federal Energy Regulatory Commission’s (the “Commission”) Notice
of Proposed Rulemaking, issued in the above-referenced proceeding on September 17, 2015
(“NOPR”),1 PJM Interconnection, L.L.C. (“PJM”) hereby respectfully submits these comments
to the Commission’s questions outlined in the NOPR.
I.
INTRODUCTION AND BACKGROUND
In the NOPR, the Commission proposes to revise its regulations to require each Regional
Transmission Organization and Independent System Operator (collectively, “RTO/ISO”) to (1)
“settle energy transactions in its real-time markets at the same time interval it dispatches
energy;” (2) “settle operating reserves2 transactions in its real-time markets at the same time
interval it prices operating reserves;” and (3) “trigger shortage pricing for any dispatch interval
during which a shortage of energy or operating reserves occurs.”3 The Commission opined that
“[a]dopting these reforms would align prices with resource dispatch instructions and operating
1
Settlement Intervals and Shortage Pricing in Markets Operated by Regional Transmission Organizations and
Independent System Operators, 152 FERC ¶ 61,218 (2015).
2
In the NOPR, the Commission states that it uses the term “operating reserves” to “refer to certain ancillary services
procured in the wholesale market that have different definitions in each RTO/ISO.” See NOPR at P 5, n.6. PJM is
referring to these services as “ancillary services” in its comments rather than “operating reserves.”
3
See NOPR at 1.
needs, providing appropriate incentives for resource performance.”4 PJM is submitting joint
comments with the Southwest Power Pool, Inc. (“SPP”) contemporaneously with this filing that
address the Commission’s questions related to the substance of its proposed shortage pricing
reforms. PJM’s answers herein address other questions raised in the NOPR.
Today, PJM settles energy and ancillary service transactions in the Real-time Energy
Market5 at hourly intervals, while dispatch signals are sent to Market Participants at five-minute
intervals. As proposed in the NOPR, PJM intends to change its market rules to settle energy and
ancillary service transactions in its Real-time Energy Market at the same interval on which it
dispatches resources. However, in order to accomplish this, PJM will need to implement fiveminute settlement intervals, which will require major technical changes to numerous systems,
particularly those related to settlements, as well as substantial changes to its governing
documents.
II.
COMMENTS
In the NOPR, the Commission seeks comment regarding settlement intervals and the
proposed deadline for compliance with the NOPR. PJM provides responsive information through
its comments below.
A. Settlement Intervals
1.
Cost and Time to Implement Reforms
The Commission requests comments regarding the estimated cost and time it will take to
implement the reforms proposed in the NOPR, specifically including the “required software
changes, increased data storage and validation, and required changes to market participant
4
See id. at Summary.
5
All capitalized terms not otherwise defined herein shall have the same meaning as defined in the PJM Open Access
Transmission Tariff (“Tariff”) or the Amended and Restated Operating Agreement of PJM Interconnection, L.L.C.
(“Operating Agreement”).
2
metering or other equipment that would result from implementing the reforms proposed . . .”6
a. Settlement System Changes For Five-Minute Settlement Intervals
PJM currently utilizes its Market Settlement Calculation System (“MSCS”) to perform all
relevant settlement calculations across all of its markets. MSCS is currently configured to
process real-time energy and ancillary service calculations and settle PJM’s markets for these
services on an hourly basis. Notably, while MSCS was designed with the capability to perform
settlement calculations on a five-minute interval basis, this capability has never been tested by
PJM to date.
Since the issuance of the NOPR, PJM has been evaluating how to best implement fiveminute settlement intervals. As part of the evaluation, PJM is testing the current version of
MSCS’s five-minute settlement capability to determine if it can be utilized by PJM, as well as
the level of effort that would be required to utilize this capability. PJM estimates that this testing
will be completed in or around April 2016. If the five-minute settlement capability test of PJM’s
current version of MSCS proves successful and PJM determines that utilizing the current version
of MSCS is appropriate going forward, PJM estimates that it will initially cost approximately
$3.0 million and take approximately 15 months to implement five-minute settlement intervals in
PJM. Moreover, further upgrades to the current version of MSCS could cost approximately $3.0
million more.
However, if PJM’s current version of MSCS is not able to process five-minute settlement
intervals, PJM will need to pursue other solutions that may require major settlement system
changes. These options could include, but are not limited to, installing an upgraded version of
MSCS, installing a hybrid solution to provide five-minute settlements only for real-time and
6
See NOPR at P 38.
3
ancillary service markets, or installing an entirely new settlement system. At this time, PJM
estimates the most expensive of these options will cost approximately $5.6 million and will take
up to 38 months to implement.
Given the foregoing, PJM cannot presently provide a definitive estimate of the cost and
timeframes needed to implement five-minute settlement intervals, as they are highly contingent
on whether and how PJM’s current software and possible future software systems are compatible
with five-minute settlement intervals. The large variance in potential implementation costs and
timeframes heightens the need for PJM to conduct a thorough review of all options being
considered in order to ensure that a solution is selected that is not only capable of executing fiveminute settlement intervals, but can also serve PJM’s long-term settlements needs. Making this
determination is not a trivial decision and will ultimately impact numerous functions both
internal to PJM and among PJM’s Market Participants. PJM believes it is important to provide
adequate time to evaluate any necessary settlement system upgrades, as it will allow PJM to
minimize overall costs to both PJM and Market Participants. Additionally, this evaluation will
help to mitigate potential compliance risks and maintain the reliable functionality of PJM’s
settlement systems. Therefore, PJM requests that any final rule resulting from the NOPR
(hereinafter “final rule”) builds in flexible timelines that will allow each RTO/ISO to align its
settlement and dispatch intervals and Market Participants to adapt their systems as needed.
b.
Costs Related To Data Storage
Because an additional 11 settlement intervals per hour will have to be stored, PJM
estimates that data volumes and storage will increase by a factor of approximately 11 to support
the alignment of settlement intervals with current dispatch intervals for real-time energy and
ancillary service calculations. The estimated cost for storage and data management to
4
accommodate the increased data volume is approximately $1.2 million. These costs are included
within the previously stated estimates.
c.
Changes Required To Market Participants’ Metering
PJM does not foresee changes being required for Market Participants’ metering to
support the alignment of settlement intervals and dispatch intervals. PJM proposes to settle load
on the same interval as dispatch intervals by using a combination of state-estimator and telemetry
data for each settlement interval. PJM will implement a set of true-up calculations to reconcile
the settlement calculation when the revenue quality meter data is available. PowerMeter and
InSchedule, which are the current external member facing applications that process revenue
quality meter and energy schedule data, do not currently have the capability to accept sub-hourly
data. Therefore, if PJM were to allow Market Participants to submit meter and/or energy
schedule data on the basis of shorter intervals, PJM would need to make technical changes to
enhance these applications so they can accept and process sub-hourly data. Further analysis is
necessary to derive the value of and a cost estimate for these additional changes.
PJM notes that its answer to this question is different from its answer to a similar
question posed by the Commission in a related proceeding earlier this year.7 In that proceeding,
PJM stated that it believed instituting sub-hourly settlements would require significant changes
to Market Participants’ systems.8 PJM’s change in position on this issue is based on discussions
and information received over the past nine months from RTOs/ISOs that have already
implemented five-minute settlement intervals, PJM’s stakeholders, and vendors.
7
See PJM, Comments of PJM Interconnection, L.L.C., Docket No. AD14-14-000 at 12 (March 6, 2015).
8
See id.
5
2.
Changes Needed to Implement Settlement Interval Updates
The Commission indicated that it also sought “comment on whether the changes
necessary to implement the settlement interval reform proposed in this NOPR would be
necessary in whole or in part to implement other reforms planned by the RTOs/ISOs or sought
by stakeholders.”9
There are no current reforms planned by PJM or its stakeholders that require five-minute
settlement intervals to be implemented, and implementing five-minute settlement intervals will
not interfere with any other reforms currently being implemented or that are in the process of
being discussed in the stakeholder process. Moreover, changes to implement settlement intervals
proposed by the Commission are needed in whole. Since PJM co-optimizes energy and ancillary
services, implementing a significant settlement change to only part of its markets would distort
PJM’s operations and settlements functions. PJM feels strongly that making changes to only
parts of its markets would be counter to the objective of improving price formation.
3.
Length of Implementation Period and Compliance Timeline
With respect to the Commission’s request for comments “concerning whether such a long
implementation period (specifically, 12 months from the date of compliance filings) is necessary
and how that implementation period may be shortened,”10 PJM advises that the implementation
period is directly related to the complexity of the solution options. As previously discussed,
PJM is performing analyses on the various solution options to determine the best way to meet a
proposed schedule while ensuring certainty in a successful implementation. PJM expects to
complete these analyses in or around April 2016. PJM understands that the time it needs to
9
NOPR at P 38.
10
See id.
6
implement five-minute settlement intervals may differ from that of other RTOs/ISOs depending
on their individual system configurations, and the amount of market rule and system changes
required by any final rule. As a result, PJM requests that the Commission build in flexible,
RTO/ISO-specific implementation deadlines for complying with any final rule. Such flexibility
will allow PJM to communicate the advantages and disadvantages of various solution options to
the Commission at a later date when such information is known to PJM, and provide the
Commission with a more accurate timeframe and cost estimates associated with implementing
five-minute settlement intervals in PJM.
Moreover, the Commission “seeks comment on the proposed deadline for RTOs/ISOs to
submit the compliance filing four months following the effective date of the final rule in this
proceeding. Specifically, the Commission seeks comment on whether the proposed compliance
timeline would allow sufficient time for RTOs/ISOs to develop and implement changes to
technological systems and business processes in response to a final rule.”11
PJM believes that it will be able to submit a compliance filing four months following the
effective date of the final rule proposing revisions to its market rules to implement five-minute
settlement intervals. However, as noted previously, the proposed compliance timeline would not
allow sufficient time for PJM to implement changes to technological systems and business
processes in response to a final rule as the needed technical and business process changes will
likely take significantly longer to achieve.
4.
Settlement of External (Intertie) Transactions
The Commission indicated that “the logic underlying our reforms to settlement of internal
transactions appears to apply equally to intertie transactions. While the Commission does not
11
Id. at P 56.
7
propose to extend the reforms to intertie transactions, the Commission seeks comment on
whether settlement reforms are appropriate for intertie transactions that are scheduled on
intervals different from the intervals on which RTOs/ISOs dispatch internal real-time energy.”12
In addition, the Commission sought “comment on whether it is necessary to align the settlement
interval for intertie transactions with external scheduling intervals, i.e., fifteen minutes.”13
PJM opines that intertie transactions should be included within the scope of any final rule
related to aligning settlement intervals with dispatch intervals. This alignment will both ensure
consistency in price formation and provide the proper compensation for all Market Participants
consistent with the scope of the final rule. This additional alignment will significantly reduce
settlement complications and compliance risk.
Currently in PJM, intertie transactions can be scheduled on as short as a 15-minute basis.
Given that each transaction consists of a fixed megawatt level for the duration of the transaction,
PJM plans to settle intertie transactions consistent with the Real-time Energy Market, which
would be on a five-minute basis in the future. PJM proposes that for an event for which a
transaction was curtailed, or the megawatt quantity was reduced during a 15-minute interval in
response to a reliability directive, each five-minute interval of the transaction would be settled
based on the integrated transaction megawatt quantity that flowed during that five-minute
interval.
5.
Settlement of Ancillary Service Transactions
The Commission requested input regarding whether it “should require RTOs/ISOs to
settle all real-time operating reserves transactions at the same interval as real-time energy
12
See id. at P 39.
13
See id.
8
dispatch and settlement intervals or whether a settlement interval that differs from an
RTO’s/ISO’s real-time energy dispatch interval would be appropriate for some operating
reserves transactions.”14
In PJM’s view, energy and ancillary services need to settle on the same interval basis
because they are co-optimized. PJM instituted co-optimization of energy and ancillary services
in 2012 in response to Commission Order No. 71915 in order to improve how it prices energy and
ancillary services.16 Co-optimizing energy and ancillary services allows Market Participants to
“appropriately reflect opportunity costs in PJM’s market clearing price,”17 which in turn
improves price formation in PJM’s markets and enhances operational efficiency by allowing
PJM to achieve a least-cost dispatch solution. If energy and ancillary services were to be settled
on a different basis, such a result could create inconsistencies between the prices used to settle
each product and could therefore undo the improvements that have been made since 2012. This
result could in turn reduce market efficiencies, disrupt operations, and impede proper price
formation in PJM.
B. Time Needed to Implement System Changes Related to Proposed Shortage Pricing
Reform
The Commission requests comments regarding whether its proposed compliance and
implementation timelines “would provide sufficient time for RTOs/ISOs to develop and
implement changes to technological systems and business processes in response to a final rule
14
Id. at P 40.
15
See Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, III FERC Stats. & Regs.,
Preambles ¶ 31,281 (2008) (“Order No. 719”), as amended, 126 FERC ¶ 61,261, order on reh’g, Order No. 719-A,
III FERC Stats. & Regs. Preambles ¶ 31,292, reh’g denied, Order No. 719-B, 129 FERC ¶ 61,252 (2009).
16
See e.g. PJM, Compliance Filing, at 2, Docket No. ER09-1063-004 (June 18, 2010) (“June 8, 2010 Compliance
Filing”).
17
See PJM Interconnection, L.L.C., 139 FERC ¶ 61,057, at P 32 (2012) (order on June 8, 2010 Compliance Filing).
9
adopting the proposed shortage pricing reform.”18
As noted, PJM is submitting joint comments with SPP contemporaneously with these
comments outlining its concerns related to the Commission’s proposed shortage pricing reforms.
While PJM opposes the proposed rules outlined in the NOPR related to shortage pricing, PJM
wishes to address the Commission’s question related to the timeline for implementing shortage
pricing should it decide to move forward with some version of its proposed shortage pricing
reforms.
While the NOPR provides sufficient time for PJM to develop and implement technical
system changes in response to a final rule related to shortage pricing reforms, PJM requests that
the Commission strongly consider a simultaneous implementation of both the shortage pricing
and settlement interval reforms. In the NOPR, the Commission states that the incentives to
follow dispatch instructions and system control are strengthened if the dispatch and settlement
intervals are aligned, and PJM agrees.19
PJM currently prices real-time energy on a five minute basis and settles on an hourly
basis, and as a result has observed times when Market Participants act in a manner contrary to
five minute prices because of their knowledge that the hourly Locational Marginal Price
(“LMP”) will integrate to either a higher or lower level than the current five-minute interval. It
is PJM’s strong belief that pricing transient shortages while continuing to settle the market on an
hourly basis will exacerbate this problem.
For example, assume that during the first two dispatch intervals of an hour there is a
transient shortage and the LMP is $800/MWh. After the transient shortage is alleviated, the
18
NOPR at P 54.
19
See id. at P 35.
10
LMP falls to $40/MWh for the next four, five-minute intervals. At half-past the hour, Market
Participants know that the final, hourly LMP on which PJM settles will be relatively high
regardless of what happens for the rest of the hour. In order to maximize profits, Market
Participants can take several actions, including but not limited to scheduling import transactions
into PJM and self-scheduling generation resources, in the last half of the hour to capitalize on the
high hourly LMP even though five minute prices and dispatch instructions may not warrant these
actions. These actions can in turn result in excess supply on the system and degrade operational
control because Market Participants have taken unilateral actions to maximize profits. In the
specific scenario outlined above, the LMP for the remaining half of the hour would have to
average approximately -$215/MWh in order for the final hourly LMP to be less than $40/MWh.
The probability of this occurring is miniscule, and therefore the Market Participant can
essentially take a riskless action to capitalize on the early-hour price spike. PJM’s current
shortage pricing mechanism guards against this type of outcomes because PJM only allows
shortage pricing for energy and reserves when the shortage condition is expected to persist for a
sustained period of time and settlement currently occurs on an hourly integrated basis.
In conclusion, while the NOPR addresses the shortage pricing and settlement reforms as
being independent from one another, PJM feels that they are closely linked together. While PJM
opposes the proposed shortage pricing reforms for the reasons outlined in its joint comments
with SPP, if the Commission orders some version of shortage pricing reforms, PJM firmly
believes that making the proposed shortage pricing reforms prior to any settlement interval
reforms would exacerbate the issues previously discussed because PJM’s dispatch and settlement
intervals are not currently aligned. For the foregoing reasons, PJM feels that addressing any
shortage pricing reforms and settlement interval reforms separately would be a detriment to the
11
design of PJM’s Real-time Energy Market and the operability of PJM’s system.
III.
CONCLUSION
PJM respectfully requests that the Commission consider the information provided
herein.
Respectfully submitted,
Craig Glazer
Vice President – Federal Government Policy
PJM Interconnection, L.L.C.
1200 G Street, N.W.
Suite 600
Washington, D.C. 20005
(202) 423-4743
[email protected]
Steven Shparber
Counsel
PJM Interconnection, L.L.C.
2750 Monroe Blvd
Audubon, PA 19403
(610) 666-8933
[email protected]
12
CERTIFICATE OF SERVICE
I hereby certify that I have this day served the foregoing document upon each person
designated on the official service list compiled by the Secretary in this proceeding.
Dated at Audubon, PA, this 30th day of November, 2015.
Steven Shparber
Counsel
PJM Interconnection, L.L.C.
2750 Monroe Blvd.
Audubon, PA 19403
(610) 666-8933
[email protected]