Below is a summary of problem statements and manual, Operating Agreement and Tariff changes approved by the Markets and Reliability Committee Thursday, May 30, 2013.

PMU Deployment

The committee endorsed manual revisions requiring new gen­er­a­tors to pay for the instal­la­tion of pha­sor mea­sure­ment units (PMUs). There were four no votes and three abstentions. The Planning Committee approved the changes March 7, reject­ing an alter­nate pro­posal to have PJM cover the cost.

Rea­son for change: PMU data can enhance grid reli­a­bil­ity for both real-time oper­a­tions and plan­ning appli­ca­tions (e.g., gen­er­a­tion dynamic model cal­i­bra­tion and val­i­da­tion, pri­mary fre­quency response, oscil­la­tion mon­i­tor­ing and detec­tion). PJM expects to receive PMU data from 82 sub­sta­tions by the end of 2013 but has none located at gen­er­a­tion stations.

Impact: The Inter­con­nec­tion Ser­vice Agree­ment will be changed to require instal­la­tion of PMUs at new inter­con­nec­tions for gen­er­a­tors with name­plate rat­ings of 100MVA or larger.  Data col­lected by the PMU must be trans­mit­ted to PJM con­tin­u­ously and stored locally for 30 days.

Commodity Futures Trading Commission Exemption Order

MRC and the Members Committee approved changes to the Operating Agreement and Tariff to comply with conditions in the Com­mod­ity Futures Trad­ing Com­mis­sion order exempt­ing most PJM mar­ket par­tic­i­pants from CFTC jurisdiction.

Rea­son for Change: The CFTC agreed March 28 to largely exempt from its reg­u­la­tions Finan­cial Trans­mis­sion Rights, day ahead and real time energy trans­ac­tions, for­ward capac­ity trans­ac­tions and reserve reg­u­la­tion trans­ac­tions, sales that are already reg­u­lated by the Fed­eral Energy Reg­u­la­tory Com­mis­sion.

How­ever, the CFTC said the exemp­tion did not apply to finan­cial mar­ket par­tic­i­pants that can­not qual­ify as “appro­pri­ate per­sons” under the Com­mod­ity Exchange Act (CEA). PJM responded April 7 by announc­ing it may deny trad­ing priv­i­leges to small mar­ket par­tic­i­pants if they are unable to qual­ify for the exemp­tion.

Impact: The changes approved Thursday expand finan­cial mar­keters’ offi­cer cer­ti­fi­ca­tion requirements. Although the changes require FERC approval, PJM CFO Suzanne Daugherty said her staff will immediately begin contacting about 100 market participants for whom the RTO does not have sufficient financial information.

The MRC was asked to choose between two options regarding the financial qualifications of an unlimited guarantor.

Stephanie Staska, of Twin Cities Power LLC, proposed language requiring “an issuer that has at least $1 million of total net worth or $5 million of total assets per Participant for which the issuer has issued an unlimited Corporate Guaranty.”

PJM proposed that the guarantor be “an issuer that would qualify for an Unsecured Credit Allowance of at least $1 million.”

Daugherty said the Twin Cities language complied with the CFTC order but was “just a little less thorough” than PJM’s proposal.

Staska said her proposal was identical to that used by MISO for compliance with FERC order 741. “It “does just as much to protect the market,” she said.

The changes were approved with the Twin Cities language with no objections and three abstentions.

See, “CFTC Approves Dodd-Frank Exemption for RTOs,” “PJM May Bar Some Financial Players from Trading.”

Up-To Congestion (UTC) Transaction Credit Requirements

MRC and the Members Committee endorsed credit requirements for up-to-congestion (UTC) trades, a fast-growing virtual transaction that previously had no credit requirements.

Rea­son for Change: UTC trad­ing vol­umes have grown dra­mat­i­cally since 2010 but there are no credit require­ments to pro­tect mar­ket par­tic­i­pants against defaults.

Impact: Bid screen and cleared port­fo­lio credit require­ments are based on a per­centile of the dif­fer­ence between each member’s bid or cleared price and the two-month rolling aver­age of real-time value per path.

Traders who fail the credit screen based on their initial bids will be able to rebid within their limits.

See “MIC OKs UTC Credit Requirement.”

FTR Forfeiture Rule Changes

MRC approved a man­ual change doc­u­ment­ing the Market Monitor’s cur­rent appli­ca­tion of the FTR forfeiture rule on incre­ment and decre­ment transactions and a prob­lem state­ment to deter­mine how the rule should be inter­preted in the future.

Reason for Change: PJM dis­cov­ered only recently that it dis­agreed with the cri­te­ria by which the mon­i­tor has been deter­min­ing whether a company’s vir­tual bid is “at or near” the deliv­ery or receipt buses of its FTR.

Impact: The manual change documents the monitor’s interpretation of the rule. The inquiry may result in changes to the application of the rule.

The mon­i­tor has been apply­ing the penalty based on the net impact of vir­tual bids, trig­ger­ing its appli­ca­tion in less than one-tenth of 1% of trades. PJM pro­posed a dif­fer­ent cal­cu­la­tion under which com­pa­nies would lose any profit for an FTR if 75% or more of the energy injected or with­drawn by a vir­tual bid is reflected in a con­strained path between FTR source and sink.

“We believe this is about as clear as we can make it,” Stu Bresler, PJM vice president of market operations, said of the manual change.

The problem statement was approved over the objections of 15 members of the PJM Public Power Coalition.

“There are at least five new problem statements on this week’s agenda,” said Bill Schofield, of Customized Energy Solutions, which represents the coalition. “This is not the time to be adding this to our plate.”

But representatives of financial marketers said revising the rule was important to them.

“Because of the heightened risk in terms of FERC enforcement action … I think it’s important that we get some clarity on how we analyze these power flows,” said Greg Pakela of DTE Energy Trading. “This kind of acts as a safe harbor.”

FTRs are “a fundamental building block to the forward price curve,” said Bruce Bleiweis, of DC Energy, LLC. “Many people would like some additional clarity here.”

Market Monitor Joseph Bowring also supported the review, noting that the rule has been unchanged since 2001. “Are we getting false positives or false negatives?” he asked. “We need to make sure everyone understands the rule. I think there’s a lot of misunderstanding.”

See “Back to the Drawing Board on FTR Forfeitures For Incs, Decs.”

Energy Market Uplift Costs

MRC approved a prob­lem state­ment cre­ating a senior task force to take a broad review of its method of pro­vid­ing Oper­at­ing Reserve pay­ments.

Reason for Change: PJM said changes are needed to reduce grow­ing uplift costs. Oper­at­ing Reserves are “make whole” pay­ments that ensure gen­er­a­tors dis­patched out of merit for sys­tem reli­a­bil­ity don’t oper­ate at a loss. Because they are col­lected through uplift charges and not reflected in day-ahead or real-time loca­tional mar­ginal prices, they can­not be hedged.

Impact: The task force will consider revising the sources of Operating Reserve charges and the methodology used to allocate them. The goal will be to minimize uplift costs while ensuring market prices are consistent with operational reliability, decrease charge rates, and reduce transaction risk due to variable fees.

See “PJM Proposes Operating Reserve Changes to Cut Uplift.”