PJM's Proposal to Reduce Biddable Nodes for Virtuals: Unjust, Unreasonable and Inconsistent with Market Design Principles

March 13, 2017

PJM’s revised proposal to restrict biddable points will transform its wholesale energy market from a nodal to zonal market. The proposal is:

1. Flawed. PJM’s Package A, which proposes to limit UTCs to zones, hubs, and aggregates, cannot, by definition, enhance the convergence of the nodal markets or nodal transmission constraints. By limiting UTC transactions to hubs, interfaces and load zones, PJM will effectively remove the product’s ability to mitigate local market power and converge nodal congestion in the PJM markets.

2. At Odds with FERC Precedent and Policies. FERC has repeatedly held that convergence of the Day-Ahead and Real-Time Markets is a key measure of market efficiency. Decreasing the number of biddable nodes, thereby decreasing convergence, is inconsistent with the economic theories advocated by both the FERC and the academic community, which has quantified the enhanced value of nodal markets over zonal markets.

3. At Odds with PJM’s Virtual Transactions Report. In contrast with PJM’s current proposal, the Virtual Transactions Report points to the “commitment convergence” gained with the expansion of the UTC product to include all generators. At the nodal level, the UTC is a real-time congestion hedge that allows market participants to voluntarily hedge their real-time congestion exposure. This product is critical to well-functioning wholesale markets and, ultimately, retail power markets.

4. Inconsistent with Fundamental Market Design Principles. PJM’s proposal does not comport with fundamental market design principles, such as best practices and cost causation, and will only exacerbate market inefficiencies. Although PJM’s proposal to decrease the number of biddable nodes for virtual transactions may be a welcome change to load serving entities, it is not consistent with the tenets of a competitive wholesale market.


Expansion of Biddable Nodes: Promoting Greater Efficiency and Accurate Price Formation in Wholesale Electricity Markets

February 9, 2017

This presentation was originally constructed in November 2016, when the PJM proposed biddable nodes was generation buses as sources only, trading hubs, load zones and interfaces. On January 25, 2017, PJM changed its proposed biddable nodes to zones, hubs, and interfaces only. The analysis set forth in this presentation is reflective of the November 2016 proposal, with the exception of the data presented on slide 27, which includes an analysis of the January 2017 proposal. The “XO Proposal” reflects the expansion of the biddable nodes to include all of PJM’s Monthly FTR nodes as both source and sink point. XO’s presentation is intended to demonstrate why having a very granular set of nodes to transact on is extremely important to proper price formation, commitment, price convergence, and market efficiency.  


Expansion of Available UTC Nodes to Promote Greater Efficiency in PJM Market

November 15, 2015

XO Energy believes that restricting the available transaction points in the Day-Ahead Market represents a significant step backwards, which will likely result in the material impact to the physical and financial operations of the system. In order to achieve a fully-functioning market, the available biddable points should be properly aligned across the markets (Long Term FTR, Annual FTR, Monthly FTR, INC/DEC/UTC).  This alignment will facilitate proper portfolio management, as it will allow both physical and financial participants to modify or hedge their long-term positions with daily fluctuations in system conditions.  In turn, physical assets will be more accurately pre-positioned in the Day-Ahead Market.