The Federal Energy Regulatory Commission accepted a PJM Interconnection proposal to reduce the number of bidding points at which market participants can submit virtual transactions, effective Jan. 16.
In doing so, FERC found that reducing eligible trading points for increment offers, or INCs, and decrement bids, or DECs, will result in resource commitment in the day-ahead market that more closely mimics the set of resources required to physically operate the system in real time. The commission also said the reduction in eligible nodes for up-to-congestion transactions, or UTCs, may reduce opportunities for false arbitrage, help align day-ahead and real-time transmission constraint profiles, and reduce the day-ahead market "solve time."
While the order acknowledged that the changes "may greatly reduce the opportunity to utilize UTCs in general, as well as the level of granularity at which UTCs can be utilized," the commissioners nevertheless said they were not persuaded that forgoing some of the theoretical benefits associated with retaining the bidding points for UTCs "necessarily renders PJM's proposal unjust and unreasonable."
Commissioner Cheryl LaFleur partially dissented from the order in that respect, saying PJM failed to demonstrate that its proposal adequately addresses the "problematic usage" of UTC transactions identified by the grid operator.
"I feel that moving in the direction of reduced granularity for the use of these products is a move in the wrong direction," LaFleur said, adding that she would be open to "more targeted" solutions.
PJM filed the proposal with FERC in October 2017, noting that it originated from a stakeholder process that began in 2013. The changes proposed by PJM impact all three types of virtual transactions recognized in the grid operator's markets: INCs, which are offers to sell power at or above a stated price at a specified node in the day-ahead market; DECs, which are bids to buy power at or below a stated price at a specific node; and UTCs, which are bids to purchase transmission congestion and losses at or below a stated price spread between two nodes.
Under the proposal, eligible trading points for INCs and DECs would be limited to nodes where generation, load or interchange transactions are settled or trading hubs where forward positions can be taken. UTC trading locations would be limited to trading hubs, residential metered load zones and interfaces. As such, extra-high-voltage, zone, individual load, and certain aggregate and generator nodes no longer would be eligible trading points for INCs and DECs, while zone, aggregate and extra-high-voltage nodes no longer would be eligible trading points for UTCs.
Power suppliers, utilities and PJM's independent market monitor filed comments in support of the tariff changes' ability to counter situations in which virtual trades purportedly extract value from the markets without providing commensurate benefits. However, members of the financial community filed protests, arguing that the rule changes would limit, and in some instances completely foreclose, their participation in PJM's markets and represent a step backward to less efficient price formation.
Financial marketers will seek rehearing
Ruta Skucas with law firm Pierce Atwood, which represents The Financial Marketers Coalition, said the group will seek rehearing of the commission's Feb. 20 ruling. The order "will effectively reduce the eligible nodes for INCs and DECs by 87.9%, from 11,727 available locations ... to approximately 1,419 available locations," and "for UTCs by 69.4%, from 418 eligible sources and sinks ... to less than 128 available sources and sinks," Skucas said.
The Financial Marketers Coalition also is concerned that FERC approved a retroactive effective date for the changes, according to Skucas. He added that market participants now are trying to figure out whether they have to pay back money or may receive money lost from these transactions over the past two months.
"Market participants are always uncomfortable with retroactivity because it upsets settled expectations," Skucas said. (FERC docket ER18-88)
Jared Anderson is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.