Reliability Pricing Model (RPM) DRAFT Business Rules

Transcription

1 Definition and Purpose of Reliability Pricing Model (RPM) 1. The purpose of the RPM is to develop a long term pricing signal for capacity resources and LSE obligations that is consistent with the PJM Regional Transmission Expansion Planning Process (RTEPP) and with operational reliability requirements. 2. The RPM includes a Base Residual Auction that is held during the month of May four (4) years prior to the start of the Delivery Year 1. In addition the RPM includes three Incremental Auctions that are held prior to the Delivery Year and a bilateral market that is facilitated through the ecapacity system. 3. The Base Residual Auction allows for the procurement of resource commitments to satisfy the region s unforced capacity obligation and allocates the cost of those commitments among the Load Serving Entities (LSEs) through a Locational Reliability Charge. 4. Incremental Auctions allow for an incremental procurement of resource commitments to satisfy an increase in the region s unforced capacity obligation due to a load forecast increase or a decrease in the amount of resource commitments due to a resource cancellation, delay, derating, EFORd increase, or decrease in the nominated value of a planned demand resource. The cost of procurement is allocated to LSEs through a Locational Reliability Charge or to resource providers that caused additional resources to be procured. 5. The bilateral market provides LSEs the opportunity to hedge against the Locational Reliability Charge determined through the Base Residual Auction and Incremental Auctions. The bilateral market also provides resource providers an opportunity to cover any auction commitment shortages. Planning and Commitment Periods 6. PJM s Planning Period is defined as an annual period from June 1 to May The Commitment Period of the Base Residual Auction and Incremental Auctions is one-year in length and corresponds to the Planning Period. 1 Upon the initial startup phase, the first four Base Residual Auctions will be held two months apart as a transition mechanism. Last Updated: January 7, 2005 Page 1

2 8. The Delivery Year is the Planning Period for which the capacity is being committed and for which the load obligation for the entire PJM region exists. 9. Resources that offer and clear in a Base Residual Auction or Incremental Auction and resources that are designated as self-scheduled in a Base Residual Auction are committed for the entire Delivery Year and are not permitted to delist at any time during the Delivery Year. Participation in Reliability Pricing Model 10. Only PJM members who are registered users of PJM s ecapacity system are eligible to participate in PJM s Reliability Pricing Model. 11. Participation by resource providers is subject to the market power mitigation rules described in Attachment Y of the PJM Open Access Transmission Tariff 12. Participation by LSEs is mandatory. Each LSE that serves load in PJM during the Delivery Year shall be responsible for paying a Locational Reliability Charge equal to their daily unforced capacity obligation in a Zone * the applicable Final Zonal Capacity Price. 13. LSEs may choose to hedge their Locational Reliability Charge obligations by directly offering and clearing resources in the Base Residual Auction and Second Incremental Auction or by designating self-supplied resources (resources directly owned or resources contracted for through unit-specific bilateral purchases) as selfscheduled to cover their obligation in the Base Residual Auction Such action may wholly or partially offset an LSE s Locational Reliability Charge during the Delivery Year depending upon how the clearing prices of the resources compare to the Final Zonal Capacity Price that applies to their unforced capacity obligation. 14. Existing generation, planned generation, bilateral contracts for unit-specific capacity resources, existing demand resources, and planned demand resources may be offered into PJM s RPM if these products meet the requirements specified in Business Rules 51 through Existing generation that is located outside of the PJM market footprint may be offered into PJM s RPM if the external generation meets the requirements specified in Business Rules Last Updated: January 7, 2005 Page 2

3 Unforced Capacity Obligation 16. The Final RTO Unforced Capacity Obligation is equal to the sum of the unforced capacity obligation satisfied through the Base Residual Auction and the Second Incremental Auction plus the Forecast of the RTO Interruptible Load for Reliability (ILR) Obligation. 17. The RTO ILR Forecast and Zonal ILR Forecasts are determined by PJM in accordance with the Load Data Systems Manual by March 31 prior to its use in the Base Residual Auction for the Delivery Year. 18. The RTO/Zonal ILR Forecast is the average of the RTO/Zonal Active Load Management (ALM) load nominated prior to the Planning Year each of the five previous Planning Years plus the average of the RTO/Zonal incremental load subject to mandatory interruption by EDCs integrated into PJM in the 2 years prior to the Base Residual Auction for the Delivery Year. A market based methodology will be considered for implementation in the future based on RPM experience. 19. The Forecast of the RTO/Zonal ILR Obligation in unforced terms equals the RTO/Zonal ILR Forecast * Demand Resource Factor* Forecast Pool Requirement. The Forecast of RTO/Zonal ILR Obligation in installed terms equals the RTO/Zonal ILR Forecast * Installed Reserve Margin. 20. The Demand Resource (DR) Factor is used to determine the reliability benefit of Demand Resources and to assign an appropriate value to Demand Resources. The DR Factor for the Delivery Year is calculated by PJM in accordance with the PJM Reserve Requirements Manual. The DR Factor will be approved and posted by March 31 prior to its use in the Base Residual Auction for the Delivery Year. 21. The Forecast Pool Requirement (FPR) for the Delivery Year is calculated by PJM and is equal to the (1 + Installed Reserve Margin) times (1-Pool-wide Average EFORd). The FPR is approved and posted by March 31 prior to its use in the Base Residual Auction for the Delivery Year. 22. The Installed Reserve Margin (IRM) for the Delivery Year is used to establish the level of installed capacity resources that will provide an acceptable level of reliability consistent with the Reliability Principles and Standards. The IRM is determined by a PJM in accordance with the PJM Reserve Requirements Manual. The IRM is Last Updated: January 7, 2005 Page 3

4 approved and posted by March 31 prior to its use in the Base Residual Auction for the Delivery Year. 23. The Pool-wide Average EFORd for the Delivery Year is the average of the forced outage rates, weighted for unit capability and expected time in service, attributable to all units that are planned to be in service during the delivery year. The Pool-wide Average EFORd is determined by PJM in accordance with the PJM Generator Resource Performance Indices Manual. The Pool-wide average EFORd is posted by March 31 prior to its use in the Base Residual Auction for the Delivery Year. 24. The Final RTO Unforced Capacity Obligation is used to determine the Zonal RPM Scaling Factors for use in determining an LSE s unforced capacity obligation. 25. A Zonal RPM Scaling Factor is determined for each zone and is equal the [(Final Zonal Peak Load Forecast for the Delivery Year divided by the prior year s Zonal Weather Normalized Summer Peak) * ((Final RTO Unforced Capacity Obligation divided by the (RTO Final Peak Load Forecast * the Forecast Pool Requirement))]. 26. The Preliminary RTO Peak Load Forecast and the Preliminary Zonal Peak Load Forecasts for the Delivery Year are determined by PJM in accordance with the Load Data Systems Manual by March 31 prior to its use in the Base Residual Auction for the Delivery Year. 27. The Final RTO Peak Load Forecast and the Final Zonal Peak Load Forecasts for the Delivery Year are determined by PJM in accordance with the Load Data Systems Manual by February 28 prior to its use in the Second Incremental Auction. If the Second Incremental Auction is deemed unnecessary, the Preliminary RTO Peak Load Forecast and the Preliminary Zonal Peak Load Forecasts are used in the determination of the Zonal RPM Scaling Factors. 28. PJM determines the most recent Zonal Weather Normalized Summer Peaks in accordance with the Load Data Systems Manual by October 31 prior to the start of the Delivery Year. 29. The RTO Weather Normalized Summer Peak is the sum of the Zonal Weather Normalized Summer Peaks. 30. The Electric Distribution Company (EDC) is responsible for allocating the most recent Zonal Weather Normalized Summer Peak and providing to PJM an Obligation Peak Load allocation for each ecapacity defined area within their zone by December 31 prior to the start of the Delivery Year. Last Updated: January 7, 2005 Page 4

5 31. The EDC is also responsible for allocating the final area Obligation Peak Load among end-use customers and calculating capacity tickets for each end-use customer by December 31 prior to the start of the Delivery Year. 32. The EDC must make capacity ticket information available to LSEs by December 31 prior to the start of the Delivery Year. 33. The EDC is responsible for uploading Obligation Peak Load data into ecapacity for every LSE serving load in their zone/area during the Delivery Year. The file upload must be performed in accordance with ecapacity s file format specifications and by the file upload deadline (36 hours before the start of the operating day). 34. The daily sum of all the LSEs Obligation Peak Load data in a zone/area must equal the EDC s Obligation Peak Load allocation to the zone/area. 35. The daily sum of the Obligation Peak Load data for all areas in a zone must equal the Zonal Weather Normalized Summer Peak. 36. The daily unforced capacity obligation of an LSE in a zone/area equals the LSE s Obligation Peak Load in the zone/area * the Zonal RPM Scaling Factor * the Forecast Pool Requirement. 37. During the Delivery Year, the daily unforced capacity obligation of an LSE is locked 36 hours before the start of the operating day. Reliability Charge 38. All LSEs pay a Locational Reliability Charge equal to their daily unforced capacity obligation in a zone * the applicable Final Zonal Capacity Price. These charges may be wholly or partially offset through (1) the designation of self-supplied resources (resources directly owned or resources contracted for through unitspecific bilaterals) as self-scheduled to cover the LSE obligation in the Base Residual Auction; or (2) directly offering and clearing of resources in the Base Residual Auction or Second Incremental Auction. 39. Zonal Capacity Prices are calculated in the Base Residual Auction or the Second Incremental Auction clearing process as the sum of the marginal value of system capacity, the shadow prices of the applicable binding locational constraints plus the Last Updated: January 7, 2005 Page 5

6 price adders for binding operational reliability constraints, and an adjustment to account for resource make-whole payments. 40. The price adders for operational reliability constraints are calculated based on allocating the incremental payment for satisfying the operational reliability constraints across all load obligations satisfied in the specific auction. 41. Preliminary Zonal Capacity Prices for the Delivery Year are posted by PJM at the end of the Base Residual Auction clearing process. 42. Fifteen (15) months prior to the start of the Delivery Year, PJM performs a reliability assessment to compare the original unforced capacity obligation procurement in the Base Residual Auction to the PJM Region Reliability Requirement based on the Final RTO Peak Load Forecast less the Forecast of the RTO ILR Obligation. If PJM determines that an unforced capacity resource shortage exceeds 100 MW, then the Second Incremental auction will be held to commit the necessary incremental capacity. The costs of such incremental procurement of capacity resources shall be recovered by adjusting the Preliminary Zonal Capacity Prices determined by the Base Residual Auction. 43. The Adjusted Zonal Capacity Price is equal to the Preliminary Zonal Capacity Price plus an adjustment to compensate for any Second Incremental Auction procurement. The adjustment is equal to the difference in the Zonal Capacity Prices in the Base Residual Auction and Second Incremental Auction multiplied by the l obligation satisfied in the Second Incremental Auction divided by the total obligations satisfied in both the Base Residual Auction and Second Incremental Auction. 44. Adjusted Zonal Capacity Prices for the Delivery Year are posted by PJM at the end of the Second Incremental Auction clearing process. 45. The Final Zonal Capacity Prices reflect the final price adjustments that are necessary to account for potential changes in the amount of the Interruptible Load for Reliability (ILR) resources certified for the Delivery Year in comparison to the Forecast of the RTO ILR Obligation and for potential decreases in nominated values of existing demand resources cleared in the Base Residual Auction and Second Incremental Auction, so that the total amount of resource credits received by certified ILR resources and resources cleared in the Base Residual Auction and Second Incremental Auction equals to the total amount of Locational Reliability Charges assessed to loads less the total credits associated with Capacity Transfer Rights received by loads Last Updated: January 7, 2005 Page 6

7 46. The Final Zonal Capacity Prices for the Delivery Year are posted by PJM after the ILR resources are certified. Unforced Capacity (UCAP) Value of a Unit 47. The calculation of the UCAP value for a unit is the summer net dependable rating of the unit times the unforced outage rate of the unit. The unforced outage rate of the unit is equal to one minus the unit s 12-month rolling average EFORd. 48. The final 12-month rolling average EFORd that is effective for the Delivery Year is based on forced outage data from the October through September period prior to the Delivery Year. 49. The final 12-month rolling average EFORd that is effective for the Delivery Year is considered locked by November 30 prior to the execution of the Third Incremental Auction. 50. New units are initially assigned a NERC industry class average EFORd. Existing Generation 51. Existing generation located within the PJM region is eligible to be offered into PJM s capacity auctions or traded bilaterally if it meets the following requirements: a. The unit is pre-certified by PJM as meeting the generation deliverability test. PJM s certification process for internal generating resources is described in the Tariff and the Operating Agreement. b. The resource owner or operator submits the required operating and maintenance information into PJM s edart and egads systems. c. The resource owner or operator performs winter and summer testing to verify the net capability of each unit. d. The unit resides in the ecapacity resource portfolio of a signatory of the PJM Operating Agreement. Last Updated: January 7, 2005 Page 7

8 52. Existing generation located outside the PJM region is eligible to be offered into the Base Residual Auction, First Incremental Auction, or Second Incremental Auction if it meets the following requirements: a. An indication of the intended ATC path to deliver the external capacity into PJM is provided. b. The unit resides in the ecapacity resource portfolio of a signatory of the PJM Operating Agreement. This is accomplished by having an approved unitspecific transaction with External Party as the Seller of the transaction in the ecapacity system. c. Twelve months of NERC/GADs unit performance data in PJM format is required to establish a unit s 12-month rolling average outage rate. d. The resource owner or operator submits the required operating and maintenance information into PJM s edart and egads systems. e. The resource owner or operator performs winter and summer testing to verify the net capability of each unit. f. The resource owner provides a letter of non-recallability assuring PJM that the energy and capacity from the unit is not recallable to any other control area. g. A communication path (acceptable to PJM Dispatching/Operations personnel) must be established between the PJM Dispatchers and the operator of the unit. 53. Existing generation located outside the PJM region is eligible to be offered into the Third Incremental Auction or traded bilaterally if it meets the following requirements: a. Firm transmission service from the unit to the border of PJM has been obtained. b. Firm Available Transfer Capability (ATC) has been obtained into PJM. A PJM Oasis number indicating Network External Designated service is required. c. The unit resides in the ecapacity resource portfolio of a signatory of the PJM Operating Agreement. This is accomplished by having an approved unit- Last Updated: January 7, 2005 Page 8

9 specific transaction with External Party as the Seller of the transaction in the ecapacity system. d. Twelve months of NERC/GADs unit performance data in PJM format is required to establish a unit s 12-month rolling average outage rate. e. The resource owner or operator submits the required operating and maintenance information into PJM s edart and egads systems. f. The resource owner or operator performs winter and summer testing to verify the net capability of each unit. g. The resource owner provides a letter of non-recallability assuring PJM that the energy and capacity from the unit is not recallable to any other control area. h. A communication path (acceptable to PJM Dispatching/Operations personnel) must be established between the PJM Dispatchers and the operator of the unit. 54. Existing generation located outside the PJM region that is offered into an RPM auction is treated in the auction process as capacity delivered into the PJM zone associated with the ATC path. 55. If existing generation located outside the PJM region cleared in the Base Residual Auction, First Incremental, or the Second Incremental Auction does not procure firm transmission service from the unit to the PJM border and obtain firm ATC reservation into PJM one month prior to the start of the Third Incremental Auction, the status of the associated bilateral transaction in the ecapacity system will be changed from Approved to Denied. The status of the associated bilateral transaction will remain in the Denied status until firm transmission service from the unit to the PJM border has been procured and a firm ATC reservation into PJM for the entire Delivery Year has been obtained prior to the start of the Delivery Year. Planned Generation 56. Planned generation that is participating in PJM s Regional Transmission Expansion Planning Process (RTEPP) is eligible to be offered into PJM s capacity auctions if it meets the following requirements: Last Updated: January 7, 2005 Page 9

10 a. The planned unit s commercial date is on or before the start of the Delivery Year. b. At a minimum, a Facilities Study Agreement has been executed for the unit to participate in the Base Residual Auction. 2 c. An Interconnection Service Agreement (ISA) has been executed for the unit to participate in an Incremental Auction. d. A Capacity Modification for the planned unit has been submitted and approved in ecapacity. e. If the planned generation was committed through the Base Residual Auction and the ISA is not received prior to the running of the First Incremental Auction, the status of the Capacity Modification will be changed from Approved to Denied. The Capacity Modification will remain at the Denied status until an ISA is executed with an in service date that is on or before the start of the Delivery Year. f. If the planned generation is delayed and not in service by the start date of the Capacity Modification, the status of the Capacity Modification will be changed from Approved to Denied. A new Capacity Modification will need to be submitted with a start date that corresponds to the date the unit will be in service. Capacity Modifications 57. Capacity Modifications (CAP MODs) are a type of ecapacity transaction used by generation owners to request the addition of a new unit or the removal of an existing unit from their ecapacity portfolio, or to request a MW increase or decrease in the summer or winter installed capacity rating of an existing unit. 58. CAP MODs with a start date that occurs on or before the start of the Delivery Year must be submitted and approved in the ecapacity system prior to the opening of the Base Residual Auction s or Incremental Auction s bidding window in order for the 2 During the Transition Phase, the minimum requirement is an executed Interconnection Service Agreement for the 2006/07 Base Residual Auction and an Executed Impact Study Agreement for the 2007/ /10 Base Residual Auctions. Last Updated: January 7, 2005 Page 10

11 CAP MODs to be considered in a party s resource position for a Base Residual Auction or Incremental Auction. 59. All other CAP MODs must be submitted a minimum of 2 business days prior to the start date of the CAP MOD. The CAP MOD must be approved by PJM in the ecapacity system prior to the start date of the CAP MOD in order to be considered in a party s final resource position. Bilateral Unit-Specific Transactions 60. At three months prior to the opening of the Base Residual Auction s bidding window, PJM will open a bilateral transaction bulletin board in ecapacity. The purpose of this system is to facilitate bilateral transaction activity. 61. Unforced capacity purchased through a bilateral unit-specific transaction that is registered in PJM s ecapacity system may be directly offered into the Base Residual Auction or Incremental Auctions or designated as a self-scheduled resource in the Base Residual Auction or Second Incremental Auction. 62. Unit-specific bilateral transactions may wholly or partially offset an LSE s Locational Reliability Charge provided that capacity purchased through the bilateral transaction is directly offered and cleared in a Base Residual Auction or Second Incremental Auction or is designated as a self-scheduled resource in a Base Residual Auction. 63. The purpose of a unit-specific bilateral transaction is to transfer the ownership of a specified amount of installed capacity from the Seller to the Buyer. 64. Both parties of a unit-specific transaction must confirm the transfer of installed capacity from the seller to the buyer via the ecapacity system. 65. The smallest increment of installed capacity that may be transacted through unitspecific transactions is 0.1 MW. 66. PJM does not recognize slice of system or unforced capacity credit bilateral transactions in RPM Auctions. 67. All unit-specific bilateral transactions that cover the Delivery Year must be submitted and approved in the ecapacity system prior to the opening of the Base Residual Auction or an Incremental Auction s bidding window in order for the transactions to Last Updated: January 7, 2005 Page 11

12 be considered in a party s resource position for a Base Residual Auction or an Incremental Auction or to be used for self-scheduling in the Base Residual Auction. 68. All other unit-specific bilateral transactions must be submitted and approved by PJM before the start date of the transaction. 69. Delisting a capacity resource is accomplished by entering into a bilateral transaction with External Party listed as the Buyer in the unit-specific transaction. 70. Delisting any portion of a capacity resource below the installed amount that cleared in the Base Residual Auction and Incremental Auctions and/or was designated as self-scheduled in a Base Residual Auction is not permitted. Demand Resource Products 71. A Demand Resource (DR) product (e.g., Direct Load Control, Firm Service Level, and Guaranteed Load Drop programs) is eligible to be offered by a resource provider as a direct resource into the Base Residual Auction or an Incremental Auction or certified as an Interruptible Load for Reliability (ILR) resource at least three months prior to the Delivery Year, if the product meets the requirements specified in the Load Data Systems Manual. 72. A Demand Resource is not eligible to be offered by a resource provider as a Load Following Resource or a Thirty-Minute Start Resource in RPM. The Demand Side Response Working Group is continuing to conduct a review of whether Demand Resources may qualify as ancillary service products for both PJM Energy Market and Reliability Pricing Model purposes. In order for Demand Resources to satisfy the operational reliability requirements of RPM, certain NERC and Regional Reliability Council rules would need to be revised. 73. Demand Resources are exempt from the winter and summer capacity testing requirement. 74. A resource provider who wishes to offer a Demand Resource product as a direct resource or ILR resource must provide (or contract with another party to provide) the following : a. Customer-specific DR information for planning and verification purposes as specified in the Load Data Systems Manual. Providers of planned Demand Resources must also provide a timeline including the milestones, which Last Updated: January 7, 2005 Page 12

13 demonstrates to PJM s satisfaction that the Demand Resources will be available for the start of the Delivery Year. PJM may verify the provider s adherence to the timetable at any time including but not limited to 60 days prior to the First and Third Incremental auctions. b. Entry of aggregated DR nomination information by program and zone/area into the PJM ecapacity system as DR Modifications (currently ALM Modifications in ecapacity system). c. A point of contact with appropriate backup to ensure single call notification from PJM and timely execution of the notification process. d. If offering as a direct resource in the Base Residual Auction or Incremental Auction, a sell offer must be submitted in the Base Residual Auction or Incremental Auction. e. If offering as an ILR resource, the ILR must be certified three months prior to the Delivery Year. 75. A resource provider who has a Demand Resource product in their ecapacity resource portfolio as a direct resource or ILR resource must provide (or contract with another party to provide) the following: a. Supplemental status reports, detailing DR available, as requested by PJM System Operations in accordance with the PJM Manuals. b. After each PJM-initiated event, customer-specific compliance and verification information, as well as aggregated data for non-pjm-initiated events, in accordance with Load Data Systems Manual. c. Load drop estimates for all DR events within 45 days after the end of the month in which the event occurred, in accordance with the Load Data Systems Manual. 76. Demand resource modifications (DR MODs) are a type of ecapacity transaction used by a party to request an increase or decrease of a nominated demand resource value in their ecapacity portfolio. 77. DR modifications (DR MODs) for direct resources that cover the Delivery Year must be submitted and approved in the ecapacity system prior to the opening of the Base Residual Auction s or Incremental Auction s bidding window in order for the DR Last Updated: January 7, 2005 Page 13

14 Modification to be considered in a party s demand resource position for a Base Residual Auction or Incremental Auction. 78. DR MODs for ILR resources that cover the Delivery Year must be submitted and approved in the ecapacity system prior to the closing of the ILR certification window, at least three months prior to the Delivery Year. 79. All other DR MODs must be submitted a minimum of 2 business days prior to the start date of the DR MOD. The DR MOD must be approved by PJM prior to the start date of the DR MOD in order to be included in a party s final demand resource position. 80. The UCAP value of a Demand Resource product is the Nominated DR Value * DR Factor * Forecast Pool Requirement. (The DR Factor is formerly known as the ALM Factor.) 81. The Nominated DR Value for a Demand Resource product can not exceed the maximum DR load reduction determined in accordance with the Load Data Systems Manual. 82. For existing Demand Resources, the maximum DR load reduction is based on the capacity ticket(s) in place at the time of the Base Residual Auction or Incremental Auction. 83. Once the final capacity tickets for the Delivery Year are known, a DR MOD decrease must be entered if the nominated DR value for a program in a zone/area decreases due to a decrease in capacity ticket values. 84. Once the final capacity tickets for the Delivery Year are known, a DR MOD increase may be entered if the nominated DR value for a program in a zone/area increases due to an increase in capacity ticket values. 85. Demand Resources offered and cleared in a Base Residual or Incremental Auction will receive the corresponding Resource Clearing Price determined by the optimization algorithm. 86. ILR resources certified will receive the Adjusted Zonal Capacity Price, less any price adders for binding operational reliability constraints. 87. Resource providers that have a Demand Resource product in their ecapacity resource portfolio as a direct resource or ILR resource are subject to a compliance Last Updated: January 7, 2005 Page 14

15 check performed after a PJM-initiated DR event that occurs during June September. 88. For each resource provider, compliance will be evaluated separately and by location for Demand Resources offered and cleared as direct resources in either the Base Residual Auction or Incremental Auction, and Demand Resources certified as ILR. For each location, compliance will be totaled over all demand resource programs (e.g., Firm Service Level, Guaranteed Load Drop, and Direct Load Control) to determine a net locational compliance position for each resource provider. 89. A DR Compliance Deficiency Charge is assessed to those resource providers that under-complied during an event. The DR compliance deficiency rate per MW-event is 1/5 th of the annual revenue rate ($/MW-year) received by the DR resource. The total DR Compliance Deficiency Charges assessed in a year is capped at the annual revenue rate the direct resource or ILR resource would receive. 90. The annual revenue rate for DR as a direct resource is based on the Resource Clearing Price received in the applicable auction. The annual revenue rate for DR as an ILR resource is based on the Adjusted Zonal Capacity Price, less any price adders for binding operational reliability constraints. 91. DR Compliance Deficiency Charges are assessed on an event basis in the DR provider s bill the third billing month after the event occurs. (e.g., June events will be included in the September bill.) 92. The DR Compliance Deficiency Charges collected from ILR resources and/or direct DRs are allocated the third billing month after the event occurs on a pro-rata basis to those DR providers that committed ILR resources and/or direct DRs that provided load reductions in excess of the amount they were obligated to provide. This allocation to each individual over performing ILR or direct DR provider shall not exceed for each ILR resource and direct demand resource the volume of excess MWs provided by the resource during a single event times 1/5 of the annual revenue rate received by resource. Any DR Compliance Deficiency Charges not allocated to over performing ILR or direct DR providers are instead allocated to LSEs based on the LSE s average Daily Unforced Capacity Obligation over the applicable month of June through September of the Delivery Year. Base Residual Auction Last Updated: January 7, 2005 Page 15

16 93. A Base Residual Auction allows resource providers to offer resources to the PJM region for the Delivery Year that is covered by the Base Residual Auction. 94. The RPM includes a single Base Residual Auction for each Planning Period. 95. A Base Residual Auction is held during the month of May four (4) years prior to the start of the Delivery Year. The following transition timetable is proposed for the execution of Base Residual Auctions during the startup phase of the RPM. Delivery Year Month Base Residual Auction is Held Comments June 1, 2006 May 31, 2007 September, 2005 Transitional Phase June 1, 2007 May 31, 2008 November, 2005 Transitional Phase June 1, 2008 May 31, 2009 January, 2006 Transitional Phase June 1, 2009 May 31, 2010 March, 2006 Transitional Phase June 1, 2010 May 31, 2011 May, 2006 First full 4-year forward auction cycle June 1, 2011 May 31, 2012 May, 2007 Normal (ongoing) Cycle 96. Base Residual Auctions are conducted in accordance with the auction schedule posted on the PJM website. 97. Products that resource providers can offer into PJM s Base Residual Auction include: existing generation, planned generation, bilateral contracts for capacity resources, existing demand resource products, and planned demand resource products. 98. Resources that reside in the ecapacity portfolio of a market participant that are not offered into the Base Residual Auction for the Delivery Year, shall be excluded from participation in any and all auctions conducted for the Delivery year, and shall be ineligible to serve as a capacity resources on behalf of any entity for such Delivery Year, and are therefore prohibited from receiving payments for the Delivery Year. Last Updated: January 7, 2005 Page 16

17 99. Resources may be directly offered into the Base Residual Auction by specifying a sell offer price in the sell offer or may be self-scheduled into the Base Residual Auction by enabling the self-schedule flag in the sell offer The product offered in the Base Residual Auction must be resource-specific The smallest increment that may be offered into a Base Residual Auction is 0.1 MW The following information shall be posted by PJM for each Base Residual Auction at least one month prior to the commencement of the Base Residual Auction offer period: Information Posted Business Rule Reference(s) RTO Peak Load Forecast #26 27 RTO/Zonal Interruptible Load for Reliability (ILR) Forecasts #17-18 Installed Reserve Margin (IRM) #22 Pool-wide Average EFORd #23 Forecast Pool Requirement (FPR) #21 Demand Resource (DR) Factor #20 PJM Region and Locational Deliverability Area (LDA) Reliability Requirements #178, 179 PJM Region and LDA Demand Curves # Locational Constraints (Import Limits to LDAs) # Load Following Constraint #190, 194 Thirty-minute Start Capability constraint #201, 203 Last Updated: January 7, 2005 Page 17

18 103. The Base Residual Auction structure is an optimization-based market clearing algorithm. This algorithm has the objective of minimizing capacity procurement costs given the supply offers, demand curve(s), Locational Constraints and Operational Reliability Constraints The amount targeted for procurement in the Base Residual Auction is equal to the PJM Region Reliability Requirement minus the Forecast of the RTO ILR Obligation All self-scheduled resources in the Base Residual Auction will automatically clear at their maximum MW amount specified in the sell offer The Base Residual Auction clearing price for each resource cleared is determined by the optimization algorithm. The Resource Clearing Price is the sum of (1) the marginal value of system capacity; (2) the shadow price of the applicable Locational Constraint; (3) the shadow price of the Load Following Constraint, if the resource committed to provide load following capability; and (4) the shadow price of the Thirty Minute Start Constraint, if the resource is committed to provide thirty minute start capability Only the resource provider that offered and cleared a sell offer in the Base Residual Auction with a sell offer price that is higher than the marginal value of system capacity plus the shadow prices of all applicable binding constraints would receive a resource make-whole payment. The resource make-whole payment is equal to the Sell Offer Price minus the Resource Clearing Price in the Base Residual Auction Base Residual Auction results are posted to a participant s ecapacity account and summary results are posted to a public portion of the PJM website Participants can view the resolution of their sell offer through ecapacity. The status of their sell offer will appear as cleared, partially cleared, not cleared, withdrawn, or rejected Base Residual Auction sales are credited monthly during the Delivery Year as the unforced capacity is actually utilized. Incremental Auctions Last Updated: January 7, 2005 Page 18

19 111. Incremental Auctions allow for an incremental procurement of resource commitments to satisfy an increase in the region s unforced capacity obligation due to a load forecast increase or a decrease in the amount of resource commitments due to a resource cancellation, delay, derating, EFORd increase, or decrease in the nominated value of a planned demand resource The RPM includes three Incremental Auctions for each Delivery Year The First Incremental Auction is held during the month of June twenty-three (23) months prior to the start of the Delivery Year. The First Incremental Auction provides an opportunity for an incremental procurement of resource commitments to satisfy a decrease in the amount of resource commitments due to resource cancellations, delay, derating, EFORd increase, or decrease in the nominated value of a planned demand resource Resource providers may replace resources that were committed in the Base Residual Auction, by submitting and clearing Buy Bids in the First Incremental Auction The costs of the incremental commitments that are cleared in the First Incremental Auction are allocated to resource providers that cleared Buy Bids in the First Incremental Auction The Second Incremental Auction is held during the month of April thirteen (13) months prior to the start of the Delivery Year. The Second Incremental Auction is held ONLY if PJM determines that an unforced capacity resource shortage for the entire PJM region exceeds 100 MW due to a higher load forecast. If the Second Incremental Auction is deemed necessary, the auction will be held to commit the necessary incremental capacity. The costs of such incremental procurement of capacity resources shall be recovered by adjusting the Preliminary Zonal Capacity Prices The Third Incremental Auction is held during the month of January four (4) months prior to the start of the Delivery Year. The Third Incremental Auction provides an opportunity for the incremental procurement of resource commitments to satisfy a decrease in the amount of resource commitments due to resource cancellations, delay, derating, EFORd increase, or decrease in the nominated value of a planned demand resource. Last Updated: January 7, 2005 Page 19

20 118. Resource providers may replace resources that were committed in the Base Residual Auction, First Incremental Auction, or Second Incremental Auction, by submitting and clearing Buy Bids in the Third Incremental Auction The costs of the incremental commitments that are cleared in the Third Incremental Auction are allocated to resource providers that cleared Buy Bids in the Third Incremental Auction A proposed transition schedule for the implementation of the Incremental Auctions is shown below: Delivery Year First Incremental Auction Held Second Incremental Auction Held If Necessary Third Incremental Auction Held June 1, 2006 May 31, 2007 None Held None Held None Held June 1, 2007 May 31, 2008 None Held April, 2006 January, 2007 June 1, 2008 May 31, 2009 June, 2006 April, 2007 January, 2008 June 1, 2009 May 31, 2010 June, 2007 April, 2008 January, 2009 June 1, 2010 May 31, 2011 June, 2008 April, 2009 January,2010 June 1, 2011 May 31, 2012 June, 2009 April, 2010 January, Incremental Auctions are conducted in accordance with the auction schedule posted on the PJM website Products that resource providers can offer into an Incremental Auction include: existing generation, planned generation, bilateral contracts for capacity resources, existing demand resource products, and planned demand resource products The product offered in the Incremental Auction must be resource-specific The smallest increment that may be offered into an Incremental Auction is 0.1 MW. Last Updated: January 7, 2005 Page 20

21 125. Resources that were selected in the Base Residual Auction and any prior Incremental Auction are modeled as fixed Resources at their committed MW amount in the Incremental Auction execution Resources that were committed in the Base Residual Auction and any prior Incremental Auction but have incremental MW capability available, may offer such capability into the current Incremental Auction execution The Incremental Auction structure is an optimization-based market clearing algorithm, similar to clearing algorithm used in the Base Residual Auction. This algorithm has the objective of minimizing capacity procurement costs given the supply offers, demand bids, Locational Constraints and Operational Reliability Constraints Only the resource provider that offered and cleared a sell offer in an Incremental Auction with a sell offer price that is higher than the marginal value of system capacity plus the shadow prices of all applicable binding constraints would receive a resource make-whole payment. The resource make-whole payment is equal to the Sell Offer Price minus the Resource Clearing Price in the Incremental Auction The parameters that are modeled in the First Incremental Auction and the Third Incremental Auction shall be identical to the parameters that were modeled in the applicable Base Residual Auction as specified in Business Rule #102; however, demand curve(s) will not be used in the First and Third Incremental Auctions The Final RTO Peak Load Forecast will be used in the Second Incremental Auction. All other parameters that are modeled in the Second Incremental Auction shall be identical to the parameters that were modeled in the applicable Base Residual Auction as specified in Business Rule #102; however, demand curve(s) will not be used in the Second Incremental Auction The total amount targeted for procurement in the Second Incremental Auction is equal to the RTO Reliability Requirement less the Forecast of the RTO ILR Obligation. The amount targeted for each LDA is based on the LDA s share of the Final Zonal Peak Load Forecast Buy Bids are entered by PJM into the Second Incremental Auction to procure the targeted amount for the RTO and each LDA. The Buy Bid price for each Buy Bid is set equal to the appropriate Cost of New Entry. Last Updated: January 7, 2005 Page 21

22 133. The Incremental Auction clearing price for each Buy Bid or Sell Offer cleared is determined by the optimization algorithm. The Resource Clearing Price is equal to the sum of (1) the marginal value of system capacity; (2) the shadow price of the applicable Locational Constraint; (3) the shadow prices of the Load Following Constraint, if the resource is committed to provide load following capability; and (4) the shadow price of the Thirty Minute Start Constraint, if the resource is committed to provide thirty minute start capability The resource make-whole payment is equal to the Sell Offer Price minus the Resource Clearing Price in the Incremental Auction. Make-whole payments required in the First and Third Incremental Auction will be charged to all buy bids on pro-rata basis based on the MWs cleared in such auction Incremental Auction results are posted to a participant s ecapacity account and summary results are posted to a public portion of the PJM website Participants can view the resolution of their buy bid or sell offer through ecapacity. The status of their buy bid or sell offer will appear as cleared, partially cleared, not cleared, withdrawn, or rejected Incremental Auction purchases/sales are charged/credited monthly during the Delivery Year. Sell Offer Requirements 138. Sell Offers for the Base Residual Auction must be submitted in PJM s ecapacity system Sell offers are only accepted during a fixed bidding window which is open for at least five (5) business days. The bidding window for a Base Residual Auction or Incremental Auction will be posted on the PJM website Sell offers may not be changed or withdrawn after the bidding window for a Base Residual Auction or Incremental Auction is closed A resource-specific sell offer must specify: a. Generating Unit or Demand Resource product b. Operating attributes that Generating unit will provide Last Updated: January 7, 2005 Page 22

23 c. Minimum and maximum amount of installed capacity offered in MWs or Minimum and maximum amount of demand resources offered in MWs d. Minimum and maximum amount of installed capacity offered in MWs for the designated operating attribute e. EFORd to apply in the auction f. Price willing to receive in $/MW-day or Self-schedule flag g. Premium price willing to receive in $/MW-day for providing operating attribute 142. The seller specifies the EFORd to apply if participating in a Base Residual Auction, First Incremental Auction, or Second Incremental Auction. The EFORd applied to the Third Incremental Auction will be the final EFORd that is effective for the Delivery Year The seller is willing to accept the clearing of any amount equal to or greater than the minimum MW amount offered and equal to or less than the maximum MW offered If the self-scheduled flag is enabled in the sell offer, the sell offer price will be set to zero and the minimum and maximum amounts specified in the sell offer must be equal The acceptance of the sell offer is based on the party s installed capacity resource position at the opening of the auction s bidding window If a participant has a positive installed capacity resource position, PJM only accepts a sell offer up to the MW amount of the installed capacity resource position If a participant has a positive demand resource position, PJM only accepts a sell offer up to the MW amount of the demand resource position If a participant has a zero or negative resource position, PJM will reject the sell offer Sell offers with an offer price in excess of the applicable offer cap will be rejected A single generating unit may submit multiple offers that provide different combinations of generator characteristics (e.g. an offer with dispatchable capability and one without) and the clearing process will choose only one of the offers. Such Last Updated: January 7, 2005 Page 23

24 offers must be consistent with the actual capability of the generating unit to provide the services offered For Planned Resources and external resources without firm transmission, sell offers for which the RPM Credit Requirement exceeds the credit available will be rejected Cleared Sell offers are binding commitments to provide capacity. Sell Offer Caps 153. Offer caps will only apply to resources that are in Locational Deliverability Areas (LDAs) that have been identified as lacking sufficient capacity transfer capability such that the LDA does not satisfy certain market power screening procedures Offer caps for sell offers of existing generation shall be based on the sum of its avoidable costs, opportunity costs, and EFORd risk adder, less projected net revenues from energy and ancillary services as defined in Attachment Y of the Open Access Transmission Tariff No offer caps are applied to sell offers of planned generation resources No offer caps are applied to sell offers of demand resources For the purposes of offer capping in the capacity auctions, a resource shall be considered a planned resource for any capacity auction that is conducted prior to the date that the generator begins commercial operation. Subsequent to the commercial operation date, a generator shall be considered an existing resource for the purposes of offer capping in the capacity auctions Potential market participants must submit plans to offer capacity and firm obligations to sell capacity to the MMU at least four months prior to the commencement of the Base Residual Auction for the Delivery Year. The MMU will evaluate the data submissions and determine if a LDA is subject to offer capping for a Delivery Year by at least three months prior to the commencement of the Base Residual Auction for such Delivery Year Within one month of the posting that a LDA is subject to mitigation, a market seller that wishes to submit a non-zero Sell Offer must submit a calculation of unit avoidable costs, opportunity costs, EFORd risk adder, and forecasted unit revenues in accordance with Attachment Y of the Open Access Transmission Tariff. The Last Updated: January 7, 2005 Page 24

25 MMU shall notify generators that are subject to offer capping for a Delivery Year at least one month prior to the commencement of the Base Residual Auction for such Delivery Year. Such notification shall include the specific offer caps applicable to the generator for the Delivery Year. Such offer caps shall apply to all auctions held for the Delivery Year. Buy Bid Requirements 160. Buy Bids for the First Incremental Auction or Third Incremental Auction must be submitted in PJM s ecapacity system Buy Bids are only accepted during a fixed bidding window which is open for at least five (5) business days. The bidding window for the First Incremental Auction or Third Incremental Auction will be posted on the PJM website Buy Bids may not be changed or withdrawn after the bidding window for a First Incremental Auction or Third Incremental Auction is closed A Buy Bid must specify: a. Quantify of unforced capacity resources desired, in increments of 0.1 MWs; b. Maximum price willing to pay in $/MW-day; c. Maximum amount of Load Following Capability or Thirty-Minute Start Resources desired to be provided by the unforced capacity resources; d. Desired location for the replacement capacity Buy bids may not specify a minimum MW amount. The buy bid may clear any MW amount equal to or less than the quantity of unforced capacity resources desired in the buy bid Cleared Buy Bids are binding commitments to purchase capacity. Requirements to Offer into PJM Energy Market 166. All generation resources that cleared in a Base Residual Auction or one of the Incremental Auctions must offer into PJM s Day Ahead Energy Market. Demand Last Updated: January 7, 2005 Page 25