By Rich Heidorn Jr.

PJM and MISO have a communication problem. “We talk past each other,” David Patton, MISO’s independent market monitor, told the Federal Energy Regulatory Commission June 20.

The topic was the way PJM models cross border transmission deliverability, which MISO says is unfairly limiting its generation from competing in PJM’s capacity market.

MISO says its generators sold only 900 MW into PJM’s capacity market for 2014/15, less than a quarter of what it says PJM could safely import. PJM’s market monitor says MISO’s export sales for 2014/15 are more than 2,100 MW.

The RTOs’ inability to agree on even this baseline data is why FERC summoned them to the unusual commission meeting last month. In the Q&A below, RTO Insider summarizes the capacity deliverability issue and tells what’s at stake.

Q. What is the factual dispute?

The central issue is whether the PJM modeling rules reflect actual transmission constraints or unfair barriers to entry.

MISO says the Total Transfer Capability from MISO to PJM is 5,300 MW to 6,300 MW. Actual capacity sales from MISO to PJM, however, were only about 400 MW (net) for the 2014/2015 delivery year. As a result, it says “at least 4,000 MW of transfer capability has not been used despite available resource and strong economic incentives.”

That additional generation, MISO said, would reduce PJM’s clearing capacity price enough to save PJM consumers about $1.1 billion for the year.

MISO’s Independent Market Monitor, David Patton, supports MISO’s complaint. Patton said PJM’s transmission reservation processes allows participants to hoard long-term firm transmission into the RTO.

Patton said PJM’s generation owners have avoided discussing the issue for five years because additional capacity imports “would lower the inflated clearing prices that generators currently enjoy.”

The Ohio Consumer Counsel agreed. “PJM generation interests may not be eager to face the additional competition that would result from removing barriers to capacity transfers between RTOs.”

PJM Response

PJM says MISO’s complaints are belied by PJM’s 2016/17 capacity market auction in May, in which 4,700 MW of MISO capacity bid, all of it clearing. That was more than double the volume that bid in last year’s base auction; about one quarter of the total came from territory new to MISO, including the Entergy transmission system.

The barriers MISO is asking FERC to eliminate, PJM says, “are in fact actual physical constraints and reliability limits.”

PJM Independent Market Monitor Joseph Bowring told FERC that PJM’s capacity market “is physical and it is linked to specific units. It’s not slice of system or liquidated damages.” What MISO calls barriers are “key attributes” of the PJM system, he said.

Bowring said MISO’s voluntary capacity market is not competitive and “doesn’t monetize IPPs (independent power producers) and unregulated generation. That’s why they want to sell into PJM.”

The dispute highlights the differences in the wholesale markets and state regulatory schemes between the two regions: Most of the states in MISO have traditional cost-of-service regulation while PJM’s development over the past 15 years was largely driven by its states’ embrace of retail choice.

Those differences also are seen in the divergent interests of stakeholders in the MISO-PJM Joint and Common Market initiative. MISO members identified capacity deliverability as one of the highest priorities among the more than two dozen matters pending before the group; PJM’s stakeholders listed the issue as a low priority.

In fact, of 28 issues under consideration by the JCM, the two sides disagree on the prioritization for all but 10. The two also are at odds over a key issue in their Order 1000 compliance filing on interregional transmission planning, due July 10.

Q. What is MISO’s proposal?

MISO said it and PJM can increase transfers between their systems by replacing the current point-to-point transmission service with a cross border product that functions like network service. Modeling of transfer limits in capacity auctions would be done by zone rather than by individual generators. MISO likens the process to the way in which RTOs integrate new balancing authorities.

PJM Response

But PJM says that kind of coordination would require a single day-ahead dispatch — an idea the RTOs previously rejected because the costs would exceed benefits. The logical extension of MISO’s proposal, Bowring says, is a single market. “That’s really what’s being talked about. That’s really the ultimate market without seams.”

PJM says MISO’s “zonal deliverability” proposal shifts costs because transmission upgrades needed to ensure deliverability would be billed to PJM loads as base line upgrades in the Regional Transmission Expansion Plan (RTEP), instead of being allocated to MISO generation.

PJM also criticized MISO’s proposal that it eliminate its Capacity Benefit Margin (CBM), a portion of PJM’s emergency import capability that is deducted from Total Transfer Capability to determine Available Transfer Capability.

Eliminating CBM will increase capacity costs, PJM contends, because it would increase PJM’s reliability requirement for the 2015/2016 RPM auction by about 2,766 MW — resulting in a $300 million increase in PJM capacity costs.

“Reckless”

PJM said a key part of MISO’s proposal — that capacity deliveries between PJM and MISO can maximized by assuming simultaneous counter-flow offsets —is “reckless.”

“This assumption is only valid if PJM and MISO would always enter into capacity emergency conditions at the same time so the counter-flows will always exist when they are needed to minimize transfers,” PJM said. “However history has proven that most capacity emergency events occur in one RTO or the other but not in both simultaneously.”

Q. What happens next?

While individual state regulators have taken sides in the dispute, the organizations representing them — the Organization of PJM States, Inc. (OPSI) and the Organization of MISO States (OMS) — have tried to stay out of the fray.

In a February filing, OPSI and OMS said they were “confident that the capacity deliverability issue will receive, in the JCM process, the attention that it deserves on a schedule it deserves.”

But in a June 13 filing, the groups said the RTOs should hire a consultant to mediate and conduct fact finding if they are unable to come to an agreement. The consultant would help select methodologies for determining transfer capability between the RTOs and the amount of capacity that can be bid into each other’s markets. It also would determine the feasibility and cost effectiveness of potential rule changes.

Possible FERC action

MISO asked FERC to set deadlines on the resolution of the issue, “What we’re asking is for the commission to give us the same kind of nudge you gave us to create the JCM,” said Clair Moeller, MISO executive vice president of transmission and technology.

PJM, however, asked FERC to close the docket, saying that putting this issue on a separate track from others before the JCM would be “disruptive.”

By their comments at the June 20 meeting, FERC commissioners indicated they would likely increase their scrutiny of stakeholder proceedings on the issue, if not going so far as to set deadlines.

Commissioner Philip Moeller said the talks could benefit from the “discipline of a deadline.”

Commissioner John R. Norris said MISO may be correct in its complaint that PJM rules are artificially restricting capacity imports below physical transport limits. “My sense is, there is a there there.”