UNITED STATES OF AMERICA
FEDERAL REGULATORY COMMISSION
PJM Interconnection, L.L.C. ) Docket No. ER09-1063-000
MOTION FOR EXTENSION OF TIME OF
PJM INTERCONNECTION, L.L.C.
Pursuant to Rule 212 of the Federal Energy Regulatory Commission’s (“Commission”)
Rules of Practice and Procedure,1 PJM Interconnection, L.L.C. (“PJM”) moves for an extension
of time to file its proposed shortage pricing proposal pursuant to the Commission’s Final Rule
issued in Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, 73
Fed. Reg. 64,100 (Oct. 28, 2008), FERC Stats. & Regs. ¶ 31,281 (2008) (“Order 719”) and the
Commission’s Order on Compliance Filing issued on December 18, 2009 in these proceedings
Order 719 requires that regional transmission organizations (“RTOs”) revise their open
access transmission tariffs to ensure that the market price for energy during times of operating
reserve shortage accurately reflects the value of energy during this time.3 RTOs were also
required to revise their market rules or show the adequacy of existing market rules by providing
a factual record and historical evidence regarding the interaction of supply and demand during
periods of shortage and the resulting effects on market prices, and an explanation of the degree
18 C.F.R. § 385.212.
PJM Interconnection, L.L.C., 129 FERC ¶ 61,250 (2009).
Order 719 at PP 192-207.
to which demand response is integrated into the various markets, the ability for demand
response to mitigate market power and how market power will be monitored and mitigated.4
PJM submitted its compliance filing on April 29, 2009, amended on May 1, 2009
(“Compliance Filing”). In its Compliance Filing PJM advised the Commission that discussions
with its stakeholders regarding the issue of shortage pricing “included lengthy debate
considering whether PJM’s current scarcity pricing mechanism already meets the Commission’s
requirements for price formation during periods of operating reserve shortage, and if not, the
best approach to modify it so that it does meet these requirements.”5
PJM further advised the Commission that “PJM and its stakeholders determined that
while PJM’s current scarcity pricing mechanism allows prices to rise during emergency
conditions, it may not fully achieve compliance with the requirements of Order 719 because it
does not result in price impacts during reserve shortages, but rather results in price impacts only
once emergency procedures are implemented during or in anticipation of an energy shortage.”6
However, PJM and its stakeholders were unable to agree on the best way to address the issue
of shortage pricing,7 due to the complexity of the issue, prior to the deadline for submitting the
Compliance Filing. Therefore, PJM and its stakeholders agreed to seek Commission approval
Id. at PP 192, 194.
Compliance Filing at 21.
When PJM submitted its Compliance Filing, the name for its mechanism “used to allow the market-
clearing price, during periods of operating reserve shortage, to reach a level that rebalances supply and
demand so as to maintain reliability while providing sufficient provisions for mitigating market power” was
called “scarcity pricing.” However, PJM recently changed the name of its mechanism to “shortage pricing”
because this revised name better reflects the intent of the mechanism – to send appropriate price signals
both before and during reserve shortages and because the name change also avoids confusion with the
current, but different, scarcity pricing process. See http://www.pjm.com/~/media/committees-
for a ten month extension of time to file a revised shortage pricing mechanism, to April 1, 2010,
to “further consider the issue and address the Commission’s concerns via an ongoing
stakeholder process.”8 In its December Oder, the Commission approved PJM’s request for an
extension of time to April 1, 2010 by which to file its shortage pricing proposal, for
implementation on June 1, 2010.9
PJM established the Scarcity Pricing Working Group (“SPWG”)10 to develop an improved
shortage pricing mechanism that is fully compliant with the criteria set forth in Order 719.11 The
SPWG’s responsibilities include developing a shortage pricing mechanism, or set of alternative
mechanisms, that reflect shortage conditions while preventing the exercise of market power
when such pricing is consistent with market and system conditions; clearly defining transparent
triggers for shortage conditions and market prices for energy and reserves resulting from
shortage conditions; addressing the impacts of the developed mechanisms to the PJM Ancillary
Service Markets and developing required changes to the associated market rules; and
identifying issues related to the relationship between the proposed shortage pricing
mechanism(s) and PJM processes or market design and refer those identified issues to the PJM
Market Implementation Committee with a suggestion of which working groups or task forces
would be appropriate to address the issue.12 The SPWG met sixteen times in the 36 weeks
from April 22, 2009 to January 8, 2010 to further discuss, among other things, PJM’s shortage
Compliance Filing at 21.
December Order at P 62.
Consistent with the change of PJM’s mechanism to “shortage pricing” from “scarcity pricing,” PJM has
proposed to change the name of the Scarcity Pricing Working Group to the Shortage Pricing Working
Group, which change must be approved by the PJM Markets and Reliability Committee at its meeting on
January 20, 2010.
See SPWG Charter located at http://www.pjm.com/~/media/committees-groups/committees/mic/
pricing mechanism and how it should be revised to address the requirements and
recommendations of Order 719. However, despite their best efforts, PJM and its stakeholders
have been unable to come to a consensus on a shortage pricing proposal. Again, due to the
complexity of the issue, PJM and its stakeholders agreed that more time was needed to further
consider the issue and address the Commission’s concerns via PJM’s ongoing stakeholder
process. Therefore, PJM is hereby requesting an additional extension of time to file its shortage
pricing proposal, until June 18, 2010, with an implementation date of March 1, 2011, in order to
provide PJM and PJM’s stakeholders the opportunity to fully vet the all of the issues and come
to a consensus on the best approach for addressing shortage pricing and to develop a proposal
that the majority can agree to accept.
PJM commits to working with stakeholders to develop a consensus proposal that
satisfies the Commission’s requirements set forth in Order 719. PJM further commits that if no
satisfactory stakeholder consensus can be reached, PJM will file its own proposal to comply
with the Commission’s directive that: “Each RTO or ISO is required to reform or demonstrate
the adequacy of its existing market rules to ensure that the market price for energy reflects the
value of energy during an operating reserve shortage.”13
PJM advises the Commission that its request to further extend the deadline for the
submission of a new shortage pricing mechanism is not driven solely by the lack of stakeholder
consensus on the best approach to addressing shortage pricing. That is because before PJM
can implement a new shortage pricing mechanism, it must develop software for the new
shortage pricing mechanism that can interact with PJM’s new dispatch software for its
Advanced Control Center (“AC2”) project.14 Currently, PJM anticipates that the completion and
Order 719 at P 194.
The AC2 project involves the design and development of new information technologies and the
construction of a second data and control center for operating the PJM grid and markets. The program is
designed to improve the security and resiliency of PJM’s business functions and to enhance the quality
implementation of the AC2 project may not occur until Fall 2010 based on the timing of vendor
software deliveries and the associated testing thereof.
Given that the completion of the AC2 project is a priority for PJM for business continuity
and software improvements, PJM believes it is prudent to refrain from making any major
changes to its other software programs until the new AC2 software applications have been
developed, tested and implemented, including a parallel operations period with PJM’s current
software systems. The consequence of this decision is that PJM will be unable to develop the
software tools needed for its new shortage pricing mechanism prior to the implementation of the
AC2 software systems, which may not be until Fall 2010. Thus, even if PJM were to file its
proposed new shortage pricing mechanism by April 1, 2010, given its current technological
limitations, PJM would not be able to implement the new mechanism by June 1, 2010 as
PJM and its stakeholders also discussed and agreed that in order to complete the
implementation of the new AC2 dispatch software, PJM must focus on training its dispatch
operators on the use of that software before introducing any other new software programs that
must interact with the new AC2 dispatch software. After due consideration of the technical and
software development requirements and limitations, the need to train PJM dispatch operators on
the new AC2 dispatch software, the development, testing and implementation of software for the
new shortage pricing mechanism, and the need to train PJM dispatch operators in the use of the
new shortage pricing mechanism software, the conclusion is that the earliest technically feasible
implementation date for a new shortage pricing mechanism is January 1, 2011. However,
and availability of services to PJM’s members. Central to the AC2 program is the development of a new
and secure open architecture to share information between business systems and applications. In
addition, the program includes the redesign and replacement of legacy technologies, including PJM’s
Energy Management System (EMS), and the upgrading of major components of the Market Management
System (MMS). This approach will improve EMS and MMS interoperability and provide for more efficient
dispatch. See http://www.pjm.com/~/media/about-pjm/newsroom/2007-annual-report.ashx at p. 15.
January 1, 2011 is not recommended as an implementation date for the new mechanism
because it is PJM’s practice to avoid making any major operational changes in summer or
winter peak periods so as to avoid creating any potential adverse impacts on system reliability.
Based on the foregoing, at the January 8, 2010 SPWG meeting, stakeholders agreed
that PJM should request an additional extension of the due date for the filing of PJM’s shortage
pricing proposal, until June 18, 2010, with a proposed implementation date of March 1, 2011. In
addition to the January 8, 2010 meeting of the SPWG, PJM also discussed an extension of time
to June 18, 2010 by which to file a proposed shortage pricing mechanism at the January 12,
2010 meeting of the PJM Market Implementation Committee. No stakeholder at either meeting
expressed any objection to PJM seeking such an extension.
PJM believes that the delay in submitting the shortage pricing compliance filing is
necessary because stakeholders need more time to understand the issues and to develop a
proposal that satisfies the Commission’s requirements, obtain Commission approval of the new
mechanism, train dispatchers on the use of the new software, and integrate the new software
into PJM’s dispatch system.
For the reasons stated above, PJM respectfully requests that the Commission grant an
extension of time and permit PJM to file its shortage pricing proposal by no later than June 18,
/s/ Jacqulynn B. Hugee
Craig Glazer Jacqulynn B. Hugee
Vice President–Federal Government Policy Assistant General Counsel - Markets
PJM Interconnection, L.L.C. PJM Interconnection, L.L.C.
1200 G Street, N.W, Suite 600 955 Jefferson Avenue
Washington, D.C. 20005 Norristown, Pennsylvania 19403
(202) 393-7756 (610) 666-8208
CERTIFICATE OF SERVICE
I hereby certify that I have caused the foregoing document to be served upon each
person designated on the official service list compiled by the Secretary in this proceeding.
Dated at Norristown, PA this 22nd day of January, 2010.
Jacqulynn B. Hugee
Assistant General Counsel - Markets
PJM Interconnection, L.L.C.
955 Jefferson Avenue
Norristown, Pennsylvania 19403