On February 21, 2018, FERC accepted PJM Interconnection, L.L.C.’s (“PJM”) Order No. 825 compliance filing, subject to condition. In Order No. 825, FERC directed each regional transmission organization (“RTO”) and independent system operator (“ISO”) to align settlement and dispatch intervals, and modify certain rules regarding when shortage pricing is triggered.

In Order No. 825, FERC ordered each RTO/ISO to align settlement and dispatch intervals by: (1) settling energy transactions in its real-time markets at the same time interval it dispatches energy; (2) settling operating reserves transactions in its real-time markets at the same time interval it prices operating reserves; and (3) settling intertie transactions in the same time interval it schedules intertie transactions. FERC also required that each RTO/ISO establish a mechanism to trigger shortage pricing for any interval in which a shortage of energy or operating reserves is indicated during the pricing of resources for that interval.

In its January 11, 2017 compliance filing, PJM proposed to replace the current hourly settlement interval applicable to the real-time energy market and ancillary services markets with a 5-minute settlement interval, based on the 5-minute locational marginal price (“LMP”) that PJM already calculates and 5-minute energy quantities. PJM explained that, to settle transactions every five minutes, it requires energy data for each 5 minute interval to correspond with the 5-minute LMP, and that because Order No. 825 did not require market participants to install metering facilities capable of providing revenue quality data every five minutes, to implement the new settlement process, PJM must determine the revenue data for settlement for all resources, energy transactions, and loads for each real-time settlement interval. PJM proposed that for those generation resources for which revenue meter data can only be provided on an hourly basis, PJM would determine the revenue data for settlements using real-time telemetry data or state estimator values to account for generation resources’ intra-hour fluctuations in output. Additionally, PJM proposed that for resources and energy transactions for which real-time scaling data is not available and for load, PJM would determine revenue data for settlements using a flat profile, and to apply flat profiling to determine revenue data for settlements for all demand response resources.

In its order conditionally accepting PJM’s compliance filing, FERC determined that PJM had partially complied with the directive in Order No. 825 to settle energy transactions in PJM’s real-time markets at the same interval it dispatches energy. FERC referred to its statement in Order No. 825 that “[i]t is important to provide a price signal to all resources, regardless of type or capability, as this will provide proper compensation to those resources capable of responding to five-minute dispatch signals, and will incentive such capability to those resources that do not currently have it.” FERC found that PJM’s proposal may not provide proper price signals to all resources, regardless of type or capability, because demand resources are not treated consistently with other resources. Specifically, FERC found that under PJM’s proposal, PJM would always determine the revenue data for settling demand response resources by applying flat profiling to hourly data regardless of whether a demand response resource provides revenue meter data on an hourly basis or every five minutes, and that, accordingly, “PJM’s proposal may not provide proper compensation to demand response resources capable of responding to 5-minute dispatch signals, nor would it incentivize such capability in demand response resources that do not currently have it.” In light of this determination, FERC directed PJM to remove the restriction in its proposal that demand response resources will always be settled using a flat profile, and to insert tariff language clarifying that demand response resources will be subject to all of the applicable provisions proposed for generation resources.

FERC also found that PJM had partially complied with the directive in Order No. 825 to settle operating reserves transactions in its real-time markets at the same time interval it prices operating reserves, because it was unclear whether PJM was proposing to settle regulation on the same time interval that it is priced. FERC directed PJM to modify its proposal in its subsequent compliance filing to “include a mathematical formula that clearly illustrates how regulation charges will be calculated and settled.”

Lastly, FERC determined that PJM’s proposal to trigger shortage pricing for any shortage condition that is identified in a 5-minute period in real-time, regardless of duration, fully complied with its directives in Order No. 825.

FERC directed PJM to submit its subsequent compliance filing within 30 days of its order. A copy of FERC’s order can be found here.