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MISO's market monitor to FERC: PJM should eliminate pseudo-tie requirement

The independent market monitor for the Midcontinent ISO has asked FERC to direct the PJM Interconnection to scrap its requirement that external resources be "pseudo-tied" to its system in order to participate in its capacity markets.

The pseudo-tie requirement is unnecessary, Potomac Economics asserted, noting that none of the three grid operators for which it serves as market monitor have such a requirement for external resources. Moreover, PJM's pseudo-tie requirement already has "imposed substantial economic and reliability costs on [MISO] that will only grow as pseudo-ties proliferate," according to the market monitor.

"It has even caused difficulties within PJM that PJM itself has effectively acknowledged as unjust and unreasonable," Potomac Economics added.

When FERC in April 2014 approved PJM's plan to cap the amount of generation imports that can clear its annual capacity auctions to help mitigate the risk that external resources may not be available when needed, it also agreed that the grid operator could exempt from that cap certain external resources that are pseudo-tied — treated electrically as if it were internal to PJM's reliability area. PJM subsequently proposed, and FERC later approved, a proposal to require that all external resources be pseudo-tied into PJM to qualify as capacity performance resources.

But Potomac Economics in an April 6 complaint (FERC docket EL17-62) said the "body of evidence that has accumulated" to date shows that PJM's pseudo-tie requirement is unjust and unreasonable because it "imposes costs, in both economic and reliability terms, that far exceed its benefits."

One problem, the market monitor said, is that the market-to-market constraints associated with pseudo-ties "grow dramatically as the number of pseudo-tied units increase," and the number of constraints market-to-market coordination mechanisms can efficiently handle are limited. Furthermore, market results have shown that the pseudo-ties are undermining efficient dispatch and congestion management within MISO, Potomac Economic said.

Even PJM "now concedes that widespread pseudo-tying creates problems," according to Potomac Economics. The market monitor noted that PJM recently proposed rule enhancements (FERC docket ER17-1138) aimed at resolving "specific modeling, congestion management, planning, and operational concerns with the current pseudo-tie rules."

Those enhancements are unjust and unreasonable, however, as they attempt to address the problem by imposing "substantial new restrictions on pseudo-tying, which effectively limit the ability of external suppliers to sell capacity in PJM," Potomac Economics said.

The market monitor recommended that PJM instead adopt an alternative framework for delivering external capacity that "would facilitate efficient capacity trading between RTOs without the need to transfer physical dispatch control via pseudo-tying." Generally, it said, the alternative relies on a set of procedures covering "six key provisions that govern PJM's rights to the capacity, the host RTO's obligations to deliver the capacity, and the external capacity suppliers' obligations."

"The capacity delivery procedures provide substantial benefits to the entire eastern interconnection by ending the adverse effects of the pseudo ties, allowing each RTO to optimally dispatch the resources that are located on its respective system," Potomac Economics said. "Ultimately, this will result in lower costs for the customers of each of the affected RTOs and improved reliability."

Efforts to address problems associated with PJM's pseudo-tie requirement are being made on several different fronts.

In February, MISO asked FERC to approve a pro forma agreement that would apply to load or generation seeking to pseudo-tie into or out of that grid operator. In that filing (FERC docket ER17-1061), MISO explained that it has always handled its relatively few pseudo-ties on a case-by-case basis but now needed to take a more standardized approach based on the substantial increase in such arrangements requested following PJM's adoption of its pseudo-tie requirement. That proposal has gotten mixed reviews from stakeholders.

Since PJM adopted its pseudo-tie requirement, a handful of complaints have been filed at FERC alleging that MISO and PJM are assessing duplicative congestion charges to pseudo-tied resources. Tilton Energy LLC filed the first (FERC docket EL16-108) in August 2016, and American Municipal Power Inc. submitted one (FERC docket EL17-29) in December 2016 and another (FERC docket EL17-37) on Jan. 6. Northern Illinois Municipal Power Agency filed a similar complaint (FERC docket EL17-31) in December 2016, and the most recent proceeding (FERC docket EL17-54) was launched by Dynegy Marketing and Trade LLC and Illinois Power Marketing Co. on March 28.