5.6Transmission Constraint Penalty Factors

5.6.1Application of Transmission Constraint Penalty Factors in the Day-ahead and Real-time Energy Markets

In the Day-ahead Energy Market, the Transmission Constraint Penalty Factors shall be used to ensure a feasible market clearing solution but not used to determine the Marginal Value of a transmission constraint.  In the Real-time Energy Market, the Office of the Interconnection shall use Transmission Constraint Penalty Factors to determine the Marginal Value for a transmission constraint when that transmission constraint cannot be managed within the binding transmission limit in a dispatch interval.  If a Market Suspension greater than twenty-four (24) consecutive

hours is declared in the Real-time Energy Market as per Operating Agreement, Schedule 1,

section 2.5.2, Transmission Constraint Penalty Factors shall not be used to determine the

Marginal Value of a transmission constraint.  The Marginal Value of the transmission constraint shall be used in the determination of the Congestion Price component of Locational Marginal Price as referenced in Tariff, Attachment K-Appendix, section 2.5 through Tariff, Attachment K-Appendix, section 2.6, and the parallel provisions of Operating Agreement, Schedule 1, section 2.5 through Operating Agreement, Schedule 1, section 2.6.  The Transmission Constraint Penalty Factor may set the Marginal Value of the transmission constraint during any dispatch interval in the Real-time Energy Market depending on the following:

(a)If the market clearing software that clears the Real-time Energy Market cannot produce a solution that manages the flow on a constraint within the binding limit in a dispatch interval at a cost less than or equal to the Transmission Constraint Penalty Factor, the Transmission Constraint Penalty Factor shall set the Marginal Value of the transmission constraint.  In such instances, to manage the flow over the constraint, the Office of the Interconnection may adjust the Transmission Constraint Penalty Factor as set forth in Tariff, Attachment K-Appendix, section 5.6.3 and the parallel provisions of Operating Agreement, Schedule 1, section 5.6.3.

(b)If the Real-time Energy Market constraints are subject to market-to-market congestion management protocols with an adjacent Regional Transmission Organization and the market clearing software cannot produce a solution that manages the flow on a constraint within the binding limit in a dispatch interval, the Office of the Interconnection may coordinate with such Regional Transmission Organization to either allow the Transmission Constraint Penalty Factor to set the Marginal Value of the transmission constraint or to apply the Constraint Relaxation Logic upon mutual agreement in accordance with applicable Joint Operating Agreements.

5.6.2Default Transmission Constraint Penalty Factor Values

Transmission constraints located within the metered boundaries of the PJM Region, including market-to-market coordinated constraints, regardless of voltage level, are defaulted to a $30,000/MWh Transmission Constraint Penalty Factor in the Day-ahead Energy Market when determining the day-ahead security constrained economic dispatch, known as the dispatch run, and $2,000/MWh in the determination of Day-ahead Prices in the pricing run.  Constraints located within the metered boundaries of the PJM Region, excluding market-to-market coordinated constraints, regardless of voltage level, are defaulted to a $2,000/MWh Transmission Constraint Penalty Factor in the Real-time Energy Market.  Market-to-market coordinated constraints in the Real-time Energy Market, located within the metered boundaries of the PJM Region, will use a default Transmission Constraint Penalty Factor of $1,000/MWh or a value agreed upon by PJM and the relevant Regional Transmission Organization in accordance with applicable Joint Operating Agreements.

5.6.3        Modifications to Transmission Constraint Penalty Factor Values

(a)The Office of the Interconnection may modify the default Transmission Constraint Penalty Factor values used in the Real-time Energy Market or Day-ahead Energy Market for individual transmission constraints to: (1) ensure the market clearing solution is feasible, (2) reflect changes to the operating practices which are mutually agreed upon with the neighboring RTO for managing such constraints for market-to-market coordinated constraints, or (3) reflect persistent system operational or reliability needs and the cost of the resources available to effectively relieve congestion on the constraint.  When such conditions occur, the Office of the Interconnection may raise the Transmission Constraint Penalty Factor when sufficient congestion relief on the constraint cannot be provided by available resources at a cost below the default Transmission Constraint Penalty Factor.  The Office of the Interconnection may lower the Transmission Constraint Penalty Factor when sufficient congestion relief on the constraint can be provided by available resources at a cost below the default Transmission Constraint Penalty Factor in order to prevent a high cost resource that cannot provide material congestion relief on the constraint from inappropriately setting price for the constraint.  In either instance, to effectively relieve congestion on the constraint, the revised Transmission Constraint Penalty Factor value may be determined using the following formula, while accounting for the ability for such inputs to vary as system conditions change throughout the operating day:

Where Dfax equals the distribution factor of the resource for the transmission constraint

*For purposes of this equation only, Incremental Energy Offer includes start up and no load costs where appropriate.

(b)The Office of the Interconnection shall post, as soon as practicable, on its website any changes to the default Transmission Constraint Penalty Factor values used in the Real-time Energy Market and/or the Day-ahead Energy Market.

(c) Notwithstanding the provisions of this section 5.6, and until such time the rebuild of the Lanexa-Dunnsville-Northern Neck line in the Dominion Transmission Zone is complete (as confirmed with the Transmission Owner and subsequently reported on the transmission facilities outage list posted on the Office of the Interconnection's website), the Office of the Interconnection shall set the transmission line limit in its Security Constrained Economic Dispatch program at a level that ensures the offers of the resources being used to control the constraint are reflected in the Congestion Price in lieu of applying a Transmission Constraint Penalty Factor when there are insufficient available resources to relieve a transmission constraint on the remaining transmission facilities serving the Northern Neck peninsula caused by the Lanexa-Dunnsville-Northern Neck line outage.