The Federal Energy Regulatory Commission (FERC) made waves last week when it approved a proposal by PJM to reduce the number of bidding locations for increment offers, decrement bids and up-to-congestion transactions by nearly 90%. These virtual transactions are trades that can be used to arbitrage price differences between the day-ahead and real-time markets and hedge financial exposure to physical positions.
Whistler CEO Anish Parikh recently sat down with Ruta Skučas, a partner at Pierce Atwood, LLP in Washington, DC, specializing in energy issues and regulatory matters, to discuss this latest FERC move. Below is an edited transcript of their conversation.
Anish Parikh: Sounds like it’s been a pretty busy week.
Ruta Skučas: It’s been a very interesting week. So, on Tuesday we got an order out of the Federal Energy Regulatory Commission on PJM's proposal to reduce minimal points for the Ink Deck and UTC up to congestion products.
Anish: Huh, and this just came out on Tuesday?
Ruta: Yes.This week. To some degree we expected it, in that it was a 60-day filing made with FERC, and FERC had a statutory deadline. But yes, FERC just ruled, and I think people had been hoping that FERC would reject the proposal. And unfortunately FERC accepted it.
So the nodes will be reduced, PJM started implementing on Wednesday morning.
Anish: They started immediately?
Anish: And what do you think this means, ultimately, for FTR trading companies and others?
Ruta: Let me kind of break it up into two or three different kinds of companies. For those companies that trade the short-term products. Obviously, this has a very immediate impact in that the nodes they can actually place have been reduced by 60-80%.
For load serving entities, and generation owners, and utilities who also transact in these products, this is going to have an impact.
Anish: I see.
Ruta: They weren't as opposed to the proposal as the financial trading community. But, this is going to have an impact on them as well.
I also want to make sure that those companies that only trade FTRs don't pay less attention to this issue because it doesn't directly affect FTRs. For some time we have been talking to PJM how we believe that UTC points should be aligned with one another, and with the points at which FTRs are available. And PJM has repeatedly agreed.
Unfortunately, it looks like they agree more from the perspective of potentially reducing FTR points at some point in time. And less so from the concept of expanding UTC points.
Also, note that Kyso is in the last steps of a CRR modification proposal that will potentially reduce the points at which CRR is maybe placed. So the concept of this expanding FTRs at some point in the future is not out of the realm of possible.
Anish: Okay. I got it. So what you're saying is that there is this action that came out that was approved on Tuesday by FERC, and there had been conversations with PJM about aligning the points. Right? I'm going to stumble on that a little bit about that alignment. And this, from one perspective, goes against the direction of where it seemed like those conversations were heading. At least, it might be surprising to some that had been following this. Is that where it's at?
Ruta: I think it's also surprising to people that FERC would approve this, because really this is turning PJM's virtual trading market into a zonal market instead of a nodal market.
Anish: Right, just from cutting so much back.
Ruta: It's reducing granularity. It's reducing access and competition. And I think many people really believed that FERC would not let this go through.
Anish: Yup. Okay. What would I do? What's your best recommendation? I guess one ... First of all make everybody aware, which is super helpful. And then, what do next?
Ruta: So, in the very, very short term the financial market of coalition, and probably a number of other companies, but I speak for the financial marketer's coalition, will be challenging in filing a request for rehearing it, asking FERC to reconsider this decision. That is kind of a procedural milestone that you have to do. It's chances of success are not ideal, but it has to be done.
Ruta: In the longer term, this is an issue we need to keep an eye one. We need to keep engaging with the ISOs. Keep letting them know the granularity. Competition access to markets are important. At some point, Congress has taken some level of interest in general market issues through their Powering America series. At some point this may be an issue to try and engage congress on. We're still thinking through our next steps, and our strategies. But we need to make sure that people let regulators and legislators know that markets matter.
Anish: Absolutely. Well we're going to leave it there. Thanks so much for joining, and for making our listeners aware. This is super helpful. And for everybody out there, stay tuned for more.
Ruta: Absolutely. Thank you, Anish.
Whistler’s platform can help traders address the changing world of FERC regulation. Learn more and request a demo.