An official with PJM Interconnection last Tuesday questioned whether FERC’s recently unveiled proposal for a standard market design (SMD) in U.S. wholesale electricity markets makes the right call in proposing to allow for hourly bidding on energy transactions without any types of restrictions.

Craig Glazer, PJM’s vice president of government policy, made his comments in a hearing held by the Pennsylvania Public Utilities Commission (PUC) examining FERC’s proposed SMD and a related notice of proposed rulemaking (NOPR) issued in late July by the federal agency. The PUC will consider comments made at the hearing as the state commission formulates its own response to the SMD proposal.

Along with Pennsylvania, PJM is the electric grid operator for New Jersey, Maryland, Delaware, Virginia, Ohio, West Virginia and Washington, DC.

Glazer pointed out to the PUC that the SMD NOPR calls for multi-hour block bids or hourly bidding for transactions. This approach “seems to have been adopted from New York,” where the New York Independent System Operator allows for hourly bids in its energy markets, he said.

But the New York grid operator also puts a great deal of restrictions on the ability of generators to be able to vary their bids within the hour. “None of those restrictions exist in the NOPR — it just says you can do hourly bidding,” Glazer added.

While PJM allows generators to self-schedule and “do a lot of things on their own,” PJM limits that flexibility to day-ahead markets, Glazer pointed out. “So that’s the tradeoff here. We can have a much more restrictive system, but allow these hourly bids, which is what New York does, or we can have a more flexible system without the hourly bids as PJM does.”

The bottom line when it comes to hourly bidding is that “this is really operationally complex.” He pointed out that as PJM works to develop common electricity markets with the Midwest Independent Transmission System Operator (MISO), “it is very difficult to do this.”

He said that PJM “will argue to FERC to use the day-ahead market as the way to go. Don’t make hourly a requirement…don’t make it a requirement on day one, that’s kind of our position.” Glazer thinks that the MISO is likely to adopt a similar position before the federal agency. “We’ve just got too much going on,” he said. “The computers are doing a lot just to solve the equation” of MISO and PJM coordinating a common power market among 27 states.

Glazer also voiced concerns about the SMD NOPR in terms of governance for regional transmission organizations (RTO).

“The NOPR says that the RTO is accountable to FERC and not to the market participants, it’s very clear on that,” Glazer told the PUC. But the proposal also “sets up a process where the board members are elected…not by all the market participants, but by a select few.”

The NOPR establishes a board-nominated council “and says that this body both chooses who runs and who elects.” In doing so, FERC’s proposal “puts a select group of market participants ahead of all the market participants, and I think that could really affect the independence of the governing process,” the PJM official noted.

PJM, in collaboration with other market participants, has come up with an alternative governance approach. PJM has proposed an RTO board-nominated council that would be made up of a mix of two independent board members and one representative from each sector.

Meanwhile, Glazer said that it would be “a mistake to delay the timing” of SMD. “This industry is in a great deal of turmoil right now,” Glazer told the PUC. “Even we are seeing situations where we’ve had questions to FERC. Do we go ahead with this filing or that filing or do you want us to wait until SMD? Do we invest in this computer system or that, or this model or not, or do we wait and see what SMD is?” Glazer said that the more SMD is “totally up in the air for some period of time, I think that’s going to add to uncertainty.”

To hammer his point home, Glazer made specific reference to a recent Congressional move to have the Department of Energy (DOE) study the impact of the SMD before it goes into effect. “We’re already in the delay mode,” he said.

The House Appropriations Committee wants the DOE to study the impact of the SMD prior to the issuance of a final rule. The request came in the form of report language included in a House Energy and Water appropriations bill.

FERC on Tuesday agreed to an extension of time to allow all interested parties to file comments on the SMD NOPR by Nov. 15, 2002. In addition, the agency said it would allow for reply comments to be filed on or before Dec. 20.

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