PJM Answers FERC Price Formation Questions

On Feb. 17, PJM filed a report with the Federal Energy Regulatory Commission, answering questions regarding price formation.

In November, the commission ordered all regional transmission organizations and independent system operators to answer detailed questions on various price formation topics. This followed two 2015 Notices of Proposed Rulemaking on price formation – one on shortage pricing and sub-hourly settlement and the other on the energy market offer cap.

The FERC asked the RTO/ISOs to address five areas in an effort to identify best practices and understand potential unintended consequences from changing rules in these areas. They are:

Pricing of Fast-Start Resources – Whether certain types of inflexible generation and demand resources are eligible to set energy prices and if so, how.

Commitments to Manage Multiple Contingencies – How ISO/RTOs model different types of transmission constraints in their technical systems.

Look-Ahead Modeling – Questions focused on the complexity of using look-ahead modeling such as PJM’s intermediate-term security constrained economic dispatch application.

Uplift Allocation –The use of cost causation as the primary principle that should govern the allocation of uplift.

Market Data Transparency – The definition of confidential data and how the lack of data transparency can lead to market inefficiencies. PJM has been working with its members since mid-2015 to clarify confidentiality rules for market data.

In 2014, the commission initiated proceedings to evaluate issues regarding price formation and settlement in the energy and ancillary service markets. It held three technical conferences to discuss topics such as sub-hourly settlements, shortage pricing and the energy market offer cap.

Public comments in response to the RTO/ISO reports are due by April 4.