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PJM Proposes Screening Process to Prevent Retail Suppliers from Submitting Demand Bids in Day-Ahead Above a Level "Commensurate" With Load Served

September 30, 2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

PJM has filed tariff revisions at FERC to institute a Demand Bid Screening process which will prevent Load Serving Entities from submitting Demand Bids into the Day-ahead Energy Market, "above a level that is commensurate with the amount of load they serve."

PJM noted that despite its various credit rules, risk is still posed to the market from LSE participation in the day-ahead market.

"Specifically, if a Load Serving Entity purchases a volume of energy in the Day-ahead Energy Market that it is incapable of selling to retail customers in real-time, the Load Serving Entity may lose a large amount of money if real-time prices fall relative to day-ahead prices, and can in turn result in the Load Serving Entity defaulting on payments to PJM," PJM said.

"This type of risk is not one that is typically encountered by PJM, and is not accounted for by PJM's existing credit requirements and systems. However, on January 21, 2014, one Load Serving Entity purchased a volume of energy in the Day-ahead Energy Market for January 22, 2014 that was approximately fifty times greater than the volume of load that it typically served. When electricity prices on January 22 were substantially lower than the price the Load Serving Entity paid in the Day-ahead Energy Market, it lost over $450,000 for that one day, which subsequently caused it to default on its obligations to PJM. Pursuant to PJM's existing Tariff and Operating Agreement rules, the Load Serving Entity's default was allocated to PJM's Members," PJM said.

PJM said that its proposed screen, "will act as a safety valve to ensure that each Load Serving Entity will not be allowed to purchase an amount of energy in the Day-ahead Energy Market above a level that would greatly exceed the amount of energy it needs to serve its retail customers."

"The purpose of Demand Bid Screening is not to determine an appropriate level of Demand Bids for each Load Serving Entity, but rather to only reject bids that appear to be clearly inappropriately high for the load that a Load Serving Entity serves. Demand Bid Screening, therefore, is not designed to restrict Demand Bids according to a precise forecast of load, but rather to restrict only Demand Bids that exceed a generous limit on the allowable volume of such bids. Accordingly, the formula used to compute Demand Bid Limit ensures that a Load Serving Entity's Demand Bid will not be accepted only if it appears to be patently inappropriate," PJM said.

PJM proposes to calculate the Demand Bid Limit for each LSE in the following manner:

Demand Bid Limit = greater of (Zonal Peak Demand Reference Point * 1.3), or (Zonal Peak Demand Reference Point + 10MW)

Where:

1. Zonal Peak Demand Reference Point = for each Zone: the product of (a) LSE Recent Load Share, multiplied by (b) Peak Daily Load Forecast.

2. LSE Recent Load Share is the Load Serving Entity's highest share of Network Load in each Zone for any hour over the most recently available seven Operating Days for which PJM has data.

3. Peak Daily Load Forecast is PJM's highest available peak load forecast for each applicable Zone that is calculated on a daily basis.

The key variable used to calculate the Demand Bid Limit is the Zonal Peak Demand Reference Point, which for each Zone is equal to the product of the LSE Recent Load Share and the Peak Daily Load Forecast, measured in megawatts for each Load Serving Entity

The LSE Recent Load Share is the Load Serving Entity's highest share of Network Load for any hour over the most recently available seven Operating Days for which PJM has data. If, for example, over the most recently available seven Operating Days for which PJM has data, the Load Serving Entity's load share of Network Load in a given Zone varied between 4% and 5%, the LSE Recent Load Share would be 5%.

"Finally, subsection (d) specifies that PJM may allow a Load Serving Entity to submit Demand Bids in excess of its Demand Bid Limit when circumstances exist that will cause, or are reasonably expected to cause, a Load Serving Entity's actual load to exceed its Demand Bid Limit on a given Operating Day. This is necessary because at times, circumstances may cause a Load Serving Entity's actual load to exceed its Demand Bid Limit, and under such circumstances, the Load Serving Entity should be allowed to submit a reasonable level of Demand Bids in order to serve its actual load. An example of such a circumstance would be if a Load Serving Entity was awarded a load obligation in a state-sponsored load auction," PJM said.

Other examples of such circumstances include mergers and acquisitions between PJM members, and sales and divestitures between PJM Members.

A Load Serving Entity may also submit a written exception request asking for a higher Demand Bid Limit, provided such request includes an explanation of the circumstances at issue and supporting documentation that justify the Load

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