Section 9 Ancillary Services Ancillary Service Markets is failed and there was no evidence of generation owners engaging in anti-competitive behavior. The United States Federal Energy Regulatory Commission (FERC) defined • Market performance was evaluated as indeterminate, after the introduction six ancillary services in Order No. 888: 1) scheduling, system control and of the new market design. It is too early to reach a definitive conclusion dispatch; 2) reactive supply and voltage control from generation service; 3) about performance under the new market design because important parts regulation and frequency response service; 4) energy imbalance service; 5) of the design remain to be decided by FERC and because there is not yet operating reserve – synchronized reserve service; and 6) operating reserve – enough information on performance. supplemental reserve service.1 Of these, PJM currently provides regulation, energy imbalance, synchronized reserve, and operating reserve – supplemental • Market design was evaluated as indeterminate, after the introduction of reserve services through market-based mechanisms. PJM provides energy the new market design. While the market design continues to include imbalance service through the Real-Time Energy Market. PJM provides the the incorrect definition of opportunity cost, overall the changes were remaining ancillary services on a cost basis. Although not defined by the positive. It is too early to reach a definitive conclusion about the new FERC as an ancillary service, black start service plays a comparable role. Black market design because important parts of the design remain to be decided start service is provided on the basis of incentive rates or cost.2 by FERC and because there is not yet enough information about actual implementation of the design. The Market Monitoring Unit (MMU) analyzed measures of market structure, Table 9‑2 The Synchronized Reserve Markets results were competitive conduct and performance for the PJM Regulation Market, the two regional Synchronized Reserve and Non-Synchronized Reserve Markets, and the PJM Market Element Evaluation Market Design Market Structure: Regional Markets Not Competitive DASR Market for the first three months of 2013. Participant Behavior Competitive Market Performance Competitive Effective Table 9‑1 The Regulation Market results were indeterminate for January through March, 2013 • The Synchronized Reserve Market structure was evaluated as not January through March 2013 competitive because of high levels of supplier concentration. The Market Element Evaluation Market Design Market Structure Not Competitive Synchronized Reserve Market had one or more pivotal suppliers which Participant Behavior Competitive failed the three pivotal supplier test in 6.3 percent of the hours in January Market Performance To Be Determined To Be Determined through March, 2013. • Participant behavior was evaluated as competitive because the market • The Regulation Market structure was evaluated as not competitive for the rules require competitive, cost based offers. three months of 2013. • Market performance was evaluated as competitive because the interaction • Participant behavior in the Regulation Market was evaluated as of the participant behavior with the market design results in competitive competitive for January through March, 2013 because market power prices. mitigation requires competitive offers when the three pivotal supplier test • Market design was evaluated as effective because market power mitigation rules result in competitive outcomes despite high levels of supplier 1 75 FERC ¶ 61,080 (1996). concentration. 2 For more details, see the 2012 State of the Market Report for PJM, Volume II, Section 9, “Ancillary Service Markets.” © 2013 Monitoring Analytics, LLC 2013 Quarterly State of the Market Report for PJM: January through March 207 2013 Quarterly State of the Market Report for PJM: January through March Table 9‑3 The Day‑Ahead Scheduling Reserve Market results were competitive • Demand. The on-peak regulation requirement is equal to 0.70 percent Market Element Evaluation Market Design of the forecast peak load for the PJM RTO for the day and the off-peak Market Structure Competitive requirement is equal to 0.70 percent of the forecast valley load for the Participant Behavior Mixed PJM RTO for the day. The average hourly regulation demand in January Market Performance Competitive Mixed through March, 2013, was 829 MW. This is a 124 MW decrease in the average hourly regulation demand of 953 MW in the same period of 2012. • The Day-Ahead Scheduling Reserve Market structure was evaluated as • Market Concentration. In January through March 2013, the PJM competitive because market participants did not fail the three pivotal Regulation Market had a weighted average Herfindahl-Hirschman Index supplier test. (HHI) of 1995 (1611 in January through March 2012), which is classified • Participant behavior was evaluated as mixed because while most offers as “highly concentrated.”3 In January through March 2013, 88 percent of appeared consistent with marginal costs (zero), about 12 percent of offers hours had one or more pivotal suppliers which failed PJM’s three pivotal reflected economic withholding. supplier test (67 percent of hours failed the three pivotal supplier test in • Market performance was evaluated as competitive because there January through March 2012). were adequate offers at reasonable levels in every hour to satisfy the requirement and the clearing price reflected those offers. Market Conduct • Market design was evaluated as mixed because while the market is • Offers. Daily regulation offer prices are submitted for each unit by functioning effectively to provide DASR, the three pivotal supplier test, the unit owner. Owners are required to submit a cost offer along with and cost-based offer capping when the test is failed, should be added to costs parameters to verify the offer, and may optionally submit a price the market to ensure that market power cannot be exercised at times of offer. Under the new market design, offers include both a capability system stress. offer and a performance offer. The performance offer is converted to $/MW by multiplying the MW offer by the ∆MW/MW value of the signal Overview type of the unit. Owners must also specify which signal type the unit Regulation Market will be following, RegA or RegD.4 As of March 31, 2013, there were 14 distinct resources (five generation and nine demand response) offering The PJM Regulation Market continues to be operated as a single market. performance regulation and following the RegD signal. • Price and Cost. The weighted Regulation Market Clearing Price for the Market Structure PJM Regulation Market for January through March 2013 was $33.87. This • Supply. In January through March 2013, the supply of offered and eligible is an increase of $21.26, or 168.6 percent, from the weighted average price regulation in PJM was both stable and adequate. The ratio of offered for regulation in January through March 2012. The cost of regulation and eligible regulation to regulation required averaged 4.39. This is 33.4 from January through March 2013 was $38.95. This is a $22.19 (132.4 percent increase over January through March 2012 when the ratio was percent) increase from the same time period in 2012. 3.29, was the result of the decrease in demand. 3 See the 2012 State of the Market Report for PJM, Volume II, Section 2, “Energy Market,” at “Market Concentration” for a more complete discussion of concentration ratios and the Herfindahl-Hirschman Index (HHI). Consistent with common application, the market share and HHI calculations presented in the SOM are based on supply that is cleared in the market in every hour, not on measures of available capacity. 4 See the 2012 State of the Market Report for PJM, Volume II, Appendix F “Ancillary Services Markets.” 208 Section 9 Ancillary Services © 2013 Monitoring Analytics, LLC Section 9 Ancillary Services Synchronized Reserve Market had three or fewer pivotal suppliers. The MMU concludes from these TPS results that the Mid-Atlantic Dominion Subzone Synchronized Reserve Although PJM has retained the two synchronized reserve markets it Market in January through March 2013 was characterized by structural implemented on February 1, 2007 their definition has changed. The RFC market power. Synchronized Reserve Zone has now merged with the former Southern Synchronized Reserve Zone into the RTO Reserve Zone. The former Mid- Market Conduct Atlantic Synchronized Reserve Zone has incorporated Dominion to become the Mid-Atlantic Dominion Reserve Zone. PJM further retains the right to • Offers. Daily cost based offer prices are submitted for each unit by the define new zones or subzones “as needed for system reliability.”5 unit owner, and PJM adds opportunity cost calculated using the average of 5-minute LMPs, which together comprise the total offer for each unit Market Structure to the Synchronized Reserve Market. The synchronized reserve offer made by the unit owner is subject to an offer cap of marginal cost plus $7.50 • Supply. In January through March, 2013, the supply of offered and eligible per MW, plus lost opportunity cost. All suppliers are paid the higher of synchronized reserve was both stable and adequate. The contribution of the market clearing price or their offer plus their unit specific opportunity DSR to the Synchronized Reserve Market remains significant. Demand cost. side resources are relatively low cost, and their participation in this market lowers overall Synchronized Reserve prices. Market Performance • Demand. PJM made a minor change to the default hourly required synchronized reserve requirements on October 1, 2012. When the RFC • Price. The weighted average price for Tier 2 synchronized reserve in the Zone became the RTO Zone on October 1, 2012, the synchronized reserve Mid-Atlantic Subzone was $7.35 per MW in January through March, requirement increased from 1,350 MW to 1,375 MW. Although the Mid- 2013, an increase of $1.29 per MW over January through March, 2012. Atlantic Sub-zone became the Mid-Atlantic Dominion Sub-zone on The total cost of synchronized reserves per MW in January through March October 1, 2012, the requirement remained at 1,300 MW. 2013 was $12.58, a $4.82 increase from the $7.76 cost of synchronized reserve in January through March 2012. The market clearing price was 58 • Market Concentration. For January through March, 2013, the average percent of the total synchronized reserve cost per MW in January through weighted HHI for cleared synchronized reserve in the Mid-Atlantic March, 2013, down from 78 percent in January through March, 2012. Dominion Subzone was 4161 which is classified as highly concentrated. The average weighted cleared Synchronized Reserve Market HHI for the • Adequacy. A synchronized reserve deficit occurs when the combination Mid-Atlantic Subzone in January through March, 2012, was 2638, which of Tier 1 and Tier 2 synchronized reserve is not adequate to meet the is classified as “highly concentrated.”6 In January through March, 2013, synchronized reserve requirement. Neither PJM Synchronized Reserve 35 percent of hours had a maximum market share greater than 40 percent, Market experienced a deficit in the first quarter of 2013. compared to 43 percent of hours in January through March, 2012. DASR • In the Mid-Atlantic Subzone, in January through March, 2013, 6.3 percent of hours that cleared a synchronized reserve market had three or fewer On June 1, 2008, PJM introduced the Day-Ahead Scheduling Reserve Market pivotal suppliers. In January through March, 2012, 49 percent of hours (DASR), as required by the RPM settlement.7 The purpose of this market is to 5 See PJM, “Manual 11, Energy and Ancillary Services Market Operations,” Revision 59 (April 1, 2013), p. 75. 6 See Section 2, “Energy Market” at “Market Concentration” for a more complete discussion of concentration ratios and the Herfindahl- 7 See 117 FERC ¶ 61,331 (2006). Hirschman Index (HHI). © 2013 Monitoring Analytics, LLC 2013 Quarterly State of the Market Report for PJM: January through March 209 2013 Quarterly State of the Market Report for PJM: January through March satisfy supplemental (30-minute) reserve requirements with a market-based Market Performance mechanism that allows generation resources to offer their reserve energy at • Price. The weighted DASR market clearing price in January through a price and compensates cleared supply at a single market clearing price. March, 2013 was $0.01 per MW. In January through March, 2012, the The DASR 30-minute reserve requirements are determined for each reliability weighted price of DASR was $0.01 per MW. region.8 If the DASR Market does not result in procuring adequate scheduling reserves, PJM is required to schedule additional operating reserves. Black Start Service Black start service is necessary to help ensure the reliable restoration of the Market Structure grid following a blackout. Black start service is the ability of a generating unit • Concentration. The MMU calculates that in January through March, to start without an outside electrical supply, or is the demonstrated ability of 2013, zero hours in the DASR market would have failed the three pivotal a generating unit to automatically remain operating at reduced levels when supplier test. The current structure of PJM’s DASR Market does not disconnected from the grid.10 include the three pivotal supplier test. The MMU recommends that the three pivotal supplier test be incorporated in the DASR market. PJM does not have a market to provide black start service, but compensates black start resource owners on the basis of an incentive rate or for all costs • Demand. In 2013, the required DASR is 6.91 percent of peak load forecast, associated with providing this service, as defined in the tariff. In January down from 7.03 percent in 2012. through March, 2013, black start credits were $27.6 million. Black start zonal credits in January through March 2013 ranged from $0.03 per MW in the Market Conduct ATSI zone (total credits of $38,980) to $10.66 per MW in the AEP zone (total • Withholding. Economic withholding remains an issue in the DASR credits of $22,352,763). Market. The direct marginal cost of providing DASR is zero, but there is an opportunity cost associated with this direct marginal cost. As of March Ancillary services costs per MW of load: January 31, 2013, thirteen percent of offers reflected economic withholding. PJM through March 2002 - 2013 rules require all units with reserve capability that can be converted into Table 9-4 shows PJM ancillary services costs for January through March, energy within 30 minutes to offer into the DASR Market.9 Units that do 2002, through 2013, on a per MW of load basis. The Scheduling, System not offer have their offers set to zero. Control, and Dispatch category of costs is comprised of PJM Scheduling, • DSR. Demand side resources are eligible to participate in the DASR PJM System Control and PJM Dispatch; Owner Scheduling, Owner System Market, but no demand resource cleared the DASR Market in January Control and Owner Dispatch; Other Supporting Facilities; Black Start Services; through March, 2013. Direct Assignment Facilities; and ReliabilityFirst Corporation charges. Supplementary Operating Reserve includes Day-Ahead Operating Reserve; Balancing Operating Reserve; and Synchronous Condensing. 8 See PJM. “Manual 13: Emergency Operations,” Revision 52, (February 1, 2013); pp 11-12. 9 PJM. “Manual 11, Energy and Ancillary Services Market Operations,” Revision 59 (April 1, 2013), p. 145. 10 OATT Schedule 1 § 1.3BB. 210 Section 9 Ancillary Services © 2013 Monitoring Analytics, LLC Section 9 Ancillary Services Table 9‑4 History of ancillary services costs per MW of Load11: January the service plus a margin. As a result of these requirements, the conduct through March 2002 through 2013 of market participants within these market structures has been consistent Scheduling, Supplementary with competition, and the market performance results have been competitive. Dispatch, and Synchronized Operating However, compliance with calls to respond to actual spinning events has been Year Regulation System Control Reactive Reserve Reserve Total an issue. As a result, the MMU recommends that the rules for compliance be 2002 $0.37 $0.59 $0.24 $0.00 $0.56 $1.76 2003 $0.65 $0.59 $0.22 $0.00 $0.98 $2.43 reevaluated. 2004 $0.53 $0.63 $0.26 $0.17 $0.89 $2.48 2005 $0.46 $0.51 $0.25 $0.07 $0.57 $1.86 The MMU concludes that the structure of the DASR Market was competitive 2006 $0.48 $0.46 $0.28 $0.09 $0.32 $1.62 2007 $0.58 $0.46 $0.30 $0.11 $0.50 $1.95 in the first three months of 2013, although concerns remain about economic 2008 $0.59 $0.47 $0.29 $0.07 $0.52 $1.94 withholding and the absence of the three pivotal supplier test in this market. 2009 $0.37 $0.37 $0.34 $0.16 $0.56 $1.80 2010 $0.34 $0.38 $0.35 $0.05 $0.68 $1.80 The benefits of markets are realized under these approaches to ancillary 2011 $0.27 $0.33 $0.39 $0.12 $0.84 $1.95 2012 $0.18 $0.41 $0.49 $0.03 $0.53 $1.64 service markets. Even in the presence of structurally noncompetitive markets, 2013 $0.28 $0.41 $0.63 $0.04 $0.94 $2.30 there can be transparent, market clearing prices based on competitive offers that account explicitly and accurately for opportunity cost. This is consistent Conclusion with the market design goal of ensuring competitive outcomes that provide appropriate incentives without reliance on the exercise of market power and The design of the Regulation Market changed very significantly effective with explicit mechanisms to prevent the exercise of market power. October 1, 2012. While the market design continues to include the incorrect definition of opportunity cost, overall the changes were positive. It is too early Overall, the MMU concludes that it is not yet possible to reach a definitive to reach a definitive conclusion about performance under the new market conclusion about the new Regulation Market design, but there is reason for design because important parts of the design remain to be decided by FERC optimism. The MMU concludes that the Synchronized Reserve Market results and because there is not yet enough information on performance. It is essential were competitive in the first three months of 2013. The MMU concludes that that the Regulation Market incorporate the consistent implementation of the DASR Market results were competitive in the first three months of 2013. the marginal benefit factor in optimization, pricing and settlement. But the experience of the last quarter of 2012 and the first quarter of 2013 is cause for Regulation Market optimism with respect the performance of the Regulation Market under the new market design. The PJM Regulation Market continues to be operated as a single market. Significant technical and structural changes were made to the Regulation The structure of each Synchronized Reserve Market has been evaluated and Market in 2012. On May 7, 2012, PJM switched to an improved optimizer the MMU has concluded that these markets are not structurally competitive called the Ancillary Services Optimizer (ASO). On October 1, 2012, PJM as they are characterized by high levels of supplier concentration and made additional technical changes to the optimized solution and, to comply inelastic demand. (The term Synchronized Reserve Market refers only to Tier with FERC Order No. 755, implemented Performance Based Regulation.12 On 2 synchronized reserve.) As a result, these markets are operated with market- clearing prices and with offers based on the marginal cost of producing 12 All existing PJM tariffs, and any changes to these tariffs, are approved by FERC. The MMU describes the full history of the changes to the tariff provisions governing the Regulation Market in the 2011 State of the Market Report for PJM, Volume II, Section 9, “Ancillary Service Markets.” 11 Results in this table differ slightly from the results reported previously because accounting load is used in the denominator in this table. © 2013 Monitoring Analytics, LLC 2013 Quarterly State of the Market Report for PJM: January through March 211 2013 Quarterly State of the Market Report for PJM: January through March November 16, 2012, FERC modified the PJM market design that was introduced of the amount of RegD regulation already committed; and the historical on October 1, 2012.13 performance of the unit as measured by 100-hour average of performance scores. A unit’s regulation capability MW multiplied by its benefits factor, and Regulation Market Changes for Performance Based modified by its performance score, results in that unit’s effective RegA signal Regulation following regulation MW.17 Regulation is a key part of PJM’s effort to minimize ACE so as to keep the FERC’s November 16, 2012 order only partially accepted the market design reportable metrics CPS1 and BAAL within acceptable limits.14 On October 20, in PJM’s August 15, 2012, filing. FERC’s November 16, 2012, order fixed the 2011, FERC issued Order No. 755 directing PJM and other RTOs/ISOs to modify marginal benefits factor for RegD resources at a value of 1.0 for purposes of their regulation markets to make use of and properly compensate a mix of fast payment. This created a dichotomy in the PJM regulation market between the and traditional response regulation resources.15 A driver for the new market marginal value of RegD resources in the dispatch, and the resulting market design was the assumption that new, fast response technologies could be price and payments to resources in the settlement process in PJM’s regulation used, in combination with traditional resources, to reduce the total amount market through the first quarter of 2013. of resources needed to meet regulation requirements and thereby reduce the cost of regulation. FERC directed that the new and traditional resources be Performance tracking is an essential element of the performance based purchased in a single market, with compensation for both capacity (MW) and Regulation Market. Every regulating unit for every hour has its performance miles (total MW per minute measured in ∆MW/MW) provided. Prior to October tracked, measured, and recorded. An hourly performance score (0.0 to 1.0) 1, 2012, regulation consisted of energy that could be added or removed within is calculated and multiplied by the MW cleared when calculating payment. five minutes following a traditional (RegA) signal. On October 1, 2012, the Additionally, hourly scores are stored and used as part of a 100 hour rolling PJM introduced a single market that included two distinct types of frequency average historical performance score to obtain an effective capability MW response: RegA (traditional and slower oscillation signal) and RegD (faster and performance MW used in clearing. Units are cleared and compensated oscillation signal). Within this new market design, resources can choose to for their effective MW. Regulation performance score measures the response follow RegA or RegD.16 of a regulating unit to its chosen regulation signal (RegA or RegD) every ten seconds by measuring: delay - the time delay of the regulation response In a market defined in terms of units of RegA equivalent regulation service, to a change in the regulation signal; correlation – the relationship between the marginal benefits factor of all units following the RegA signal is one, the regulating resource output and the regulation signal; and precision – the while the marginal benefits factor of units following the RegD signal depends difference in energy provided from the difference in energy requested.18 Figure on how much RegD following resources are used. Under PJM’s August 15, 9-1 shows the average performance score by unit type and signal followed. 2012, proposal, the benefits factor can be as high as 2.9 but never lower than zero. Between January 1, 2013, and March 31, 2013, the lowest actual marginal benefit factor was 1.58. The highest marginal benefit factor was 2.899. The average marginal benefit factor was 2.655. Effective regulation is a function of two components, the benefits factor, which itself is a function 13 PJM Interconnection, L.L.C., 139 FERC ¶ 61,130 (2012) 14 See the 2012 State of the Market Report for PJM, Appendix F: Ancillary Services, p.1 17 See PJM “Manual 11: Energy & Ancillary Services Market Operations,” Revision 59, (April 1, 2013); pps 61-62. 15 Frequency Regulation Compensation in the Organized Wholesale Power Markets, 137 FERC ¶ 61,064 (2011) (“Order No. 755”). 18 A full specification of each of the three criteria used in the performance score is presented in PJM “Manual 12: Balancing Operations” 16 For more details, see the 2012 State of the Market Report for PJM, Volume II, Section 9, “Ancillary Service Markets.” Rev. 27 (December 20, 2012); 4.5.6, p 52. 212 Section 9 Ancillary Services © 2013 Monitoring Analytics, LLC Section 9 Ancillary Services Figure 9‑1 Average performance score grouped by unit type and regulation Market Structure signal type: January through March 2013 Supply 100% Table 9-5 shows capability, average daily offer and average hourly eligible CT (RegA) MW for all hours. The hourly regulation capability decreased in January DSR (RegA) 90% Hydro (RegA) through March 2013, to 8,149 MW from 9,257 MW during the same time 80% Steam (RegA) period of 2012. Eligible regulation as a percentage of capability increased by RegD nine percent over the same period in 2012. W M 70% Type Table 9‑5 PJM regulation capability, daily offer19 and hourly eligible: January Signal) 60% through March 2012 and 201320 Percentage of Resource ( 345000%%% P22e00r11i32o d((JJaann--MMaarr)) CapabRileigtyu l(89aM,,t12iWo45n97) AvOefrfaegre ( 66DM,,8a2W7i1l81y) CapabiliPtye rOcfefn77et64r eo%%df AvEelirgaigbele H (33oM,,u25Wr05l19y) CapabiliPtye rEcleing43it45b o%%lef The supply of regulation can be affected by regulating units retiring from 20% service. Table 9-6 shows what the impact on the Regulation Market would be if all units retire that are requesting retirement through the end of 2015. 10% Table 9‑6 Impact on PJM Regulation Market of currently regulating units 0% 0.50-0.59 0.60-0.69 0.70-0.79 0.80-0.89 0.90-0.99 1.00 scheduled to retire through 2015 Performance Score Range Current Regulation Settled MW of Percent Of Units, January Settled MW, January Units Scheduled To Units Scheduled To Regulation MW To through March 2013 through March 2013 Retire Through 2015 Retire Through 2015 Retire Through 2015 The use of a performance score to measure the accuracy of a regulating 252 1,797,570 30 20,741 1.15% resource is the primary reason that the required regulation has been lowered from 1.0 percent to 0.7 percent of forecast peak load. The cost of each unit is calculated in market clearing using its offer price, The performance based Regulation Market requires that unit owners provide lost opportunity cost, capability MW, and the miles to MW ratio of the signal two part offers for their regulation resources, an offer for regulation capability type they choose to follow, modified by resource benefit factor and historic in terms of $/MW and a regulation performance offer in terms of $/MW. performance score. As of October 1, 2012, a regulation resource’s total offer In addition, unit owners must enter the regulation signal type the unit will is equal to the sum of its total capability ($/MW) and performance offer follow, RegA or RegD. Owners may enter price based offers subject to a ($/MW). As of October 1, 2012, the within hour five minute clearing price combined offer cap of $100/MW. for regulation is determined by the total offer, including the actual within 19 Average Daily Offer MW excludes units that have offers but are unavailable for the day. 20 Total offer capability is defined as the sum of the maximum daily offer volume for each offering unit during the period, without regard to the actual availability of the resource or to the day on which the maximum was offered. © 2013 Monitoring Analytics, LLC 2013 Quarterly State of the Market Report for PJM: January through March 213 2013 Quarterly State of the Market Report for PJM: January through March hour lost opportunity cost, of the most expensive cleared regulation resource Although the benefits factor for traditional (RegA following) resources is 1.0, in each interval. The total clearing price for the hour is the simple average the effective MW of RegA following resources is lower than the offered MW of the twelve interval prices within the hour. The total clearing price of the because the performance score is less than 1 (Figure 9-2). For January through hour (RMCP) is in two parts, the performance clearing price (RMPCP) and the March, 2013, the MW-weighted average RegA performance score was 0.79. capability clearing price (RMCCP). The performance clearing price ($/MW) is equal to the most expensive performance offer cleared for the hour. The Figure 9‑2 Daily average actual cleared MW of regulation, effective cleared MW of regulation, and average performance score; all cleared regulation; capability clearing price ($/MW) is equal to the difference between the total January through March 2013 clearing price for the hour and the performance clearing price for the hour. 1,400 1 Since the implementation of Regulation Performance on October 1, 2012, Cleared Effective MW Cleared Actual MW both regulation price and regulation cost per MW are higher than they were Actual MW Weighted Average Performance Score 0.9 1,200 prior to October 1, 2012. Since the implementation of shortage pricing and 0.8 changing the regulation requirement to 0.70 percent of peak load forecast (from one percent of peak load forecast prior to October 1) the price and cost 1,000 0.7 e of regulation have remained high. The weighted average regulation price for or 0.6 Sc January through March, 2013 was $33.87. The regulation cost for January 800 nce through March, 2013, was $38.95. The ratio of price to cost is significantly MW 0.5 orma higher at 87 percent (compared with 76 percent in Q1 of 2012), meaning 600 Perf 0.4 that more of the costs which used to come from LOC as a result of low load forecasts are now part of the price. 400 0.3 0.2 Since October 1, a number of resources have offered and cleared the regulation 200 market following the RegD signal. As of March 31, 2013, there were 14 distinct 0.1 resources (five generation and nine demand response) offering performance 0 0 regulation and following the RegD signal. Jan Feb Mar In the period from January 1, 2013 through March 31, 2013, the marginal benefits factor (contribution to ACE correction) for cleared RegD following resources has ranged from 1.58 to 2.899 with an average over all hours of 2.66. If the set of resources that follow the RegD signal were to be considered as a separate market, the HHI in that market from January through March 2013 was 5823. 214 Section 9 Ancillary Services © 2013 Monitoring Analytics, LLC Section 9 Ancillary Services Figure 9‑3 Daily average actual cleared MW of regulation, effective cleared several times. It had been scheduled to be reduced from one percent of peak MW of regulation, and average performance score; RegD units only; January load forecast to 0.9 percent on October 1, 2012, but instead it was changed through March 2013 from 1 percent of peak load forecast to 0.78 percent of peak load forecast. It was further reduced to 0.74 percent of peak load forecast on November 22, 300 1 Cleared Effective MW 2012. Then it was reduced to its current value of 0.70 percent of peak load Cleared Actual MW Actual MW Weighted Average Performance Score 0.9 forecast on December 18, 2012. Table 9-7 shows the required regulation and 250 its relationship to the supply of regulation. 0.8 Table 9‑7 PJM Regulation Market required MW and ratio of eligible supply to 0.7 e 200 or requirement: January through March 2012 and 2013 Sc 0.6 nce a W m Average Required Average Required Ratio of Supply to Ratio of Supply to M 150 0.5 erfor Month Regulation (MW), 2012 Regulation (MW), 2013 Requirement, 2012 Requirement, 2013 P Jan 1,005 851 3.29 3.66 0.4 Feb 979 870 3.45 4.65 Mar 876 766 3.14 4.86 100 0.3 0.2 PJM’s performance as measured by CPS and BAAL standards has not been 50 reduced as a result of the lower regulation requirement.21 0.1 Market Concentration 0 0 Jan Feb Mar Table 9-8 shows Herfindahl-Hirschman Index (HHI) results for January through March of 2012 and 2013. The average HHI of 1995 is classified as For RegD resources, the effective MW are higher than the actual MW because moderately concentrated and is higher than the HHI for the same period in their benefits factor at current participant levels is significantly greater than 2012. 1.0 (Figure 9-3). For January through March, 2013, the MW-weighted average RegD resource performance score was 0.86. Table 9‑8 PJM cleared regulation HHI: January through March 2012 and 2013 Period Minimum HHI Weighted Average HHI Maximum HHI Demand 2013 (Jan-Mar) 757 1995 5449 2012 (Jan-Mar) 814 1611 4429 Demand for regulation does not change with price. The regulation requirement is set by PJM in accordance with NERC control standards, based on reliability objectives and forecast load. Prior to October 1, 2012, the regulation requirement was 1.0 percent of the forecast peak load for on peak hours and 1.0 percent of the forecast valley load for off peak hours. Between October 1, 2012, and December 31, 2012, PJM changed the regulation requirement 21 2012 State of the Market Report for PJM, Appendix F: Ancillary Services. © 2013 Monitoring Analytics, LLC 2013 Quarterly State of the Market Report for PJM: January through March 215 2013 Quarterly State of the Market Report for PJM: January through March Figure 9-4 compares the 2013 HHI distribution curves with distribution curves The MMU concludes from these results that the PJM Regulation Market in for the same periods of 2012 and 2011. January through March 2013 was characterized by structural market power in 88 percent of the hours. Figure 9‑4 PJM Regulation Market HHI distribution: January through March 2011, 2012, and 2013 Table 9‑9 Regulation market monthly three pivotal supplier results: January through March 2011, 2012 and 2013 400 2013 2012 2011 2013 (Jan-Mar) Month Percent of Hours Pivotal Percent of Hours Pivotal Percent of Hours Pivotal 350 2012 (Jan-Mar) Jan 83% 71% 95% 2011 (Jan-Mar) Feb 82% 67% 93% 300 Mar 97% 64% 94% 250 Market Conduct ours 200 Offers H Regulation Market participation is a function of the obligation of all LSEs 150 to provide regulation in proportion to their load share. LSEs can purchase 100 regulation in the Regulation Market, purchase regulation from other providers bilaterally, or self-schedule regulation to satisfy their obligation (Table 9-10).23 50 0 601-700 701-800 801-900 901-1000 1001-1100 1101-1200 1201-1300 1301-1400 1401-1500 1501-1600 1601-1700 1701-1800 1801-1900 1901-2000 2001-2100 2101-2200 2201-2300 2301-2400 2401-2500 2501-2600 2601-2700 2701-2800 2801-2900 2901-3000 3001-3100 3101-3200 3201-3300 3301-3400 3401-3500 3501-3600 3601-3700 HHI Range Table 9-9 includes a monthly summary of three pivotal supplier results. In January through March 2013, 88 percent of hours had one or more pivotal suppliers which failed or should have failed PJM’s three pivotal supplier test.22 In March, 2013, 97 percent of hours had one or more pivotal supplier and in 78 percent of hours all suppliers were pivotal. Offer capping in the regulation market has little impact on prices because offers are a smaller component of price than is LOC (Figure 9-6). 22 The MMU monitors the application of the TPS test by PJM and brings any issues to the attention of PJM. 23 See PJM “Manual 28: Operating Agreement Accounting,” Revision 59, (April 22, 2013); para 4.1, pp 14. 216 Section 9 Ancillary Services © 2013 Monitoring Analytics, LLC