Energy Price Formation Task Force Discusses Reserve Market Design

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The Energy Price Formation Senior Task Force expects to begin looking at proposal packages when it meets next on Aug. 6. If the schedule holds, the Markets and Reliability Committee could be seeing proposals on a first read at its Sept. 27 meeting.

The task force has been meeting since January to identify ways to enhance energy market pricing so that prices accurately reflect the true cost of serving electricity demand while minimizing the need to recover those costs through out-of-market uplift payments.

At the July 17 task force meeting, members discussed a recent paper outlining some changes PJM is proposing to the reserve market design and operating reserve demand curves (ORDCs).

“This is a pretty important initiative for PJM,” said Stu Bresler, senior vice president – Operations and Markets, noting that the Board of Managers in April prioritized an examination of the reserve market and ORDCs and how they could be made to function more effectively.

“It’s abundantly clear that we’re not pricing reserves as well as we could,” Bresler said. “Somewhere around 60 percent of revenue is paid through uplift – that’s got to be a huge red flag that something’s not being priced correctly.”

PJM proposes consolidating the Tier 1 and Tier 2 reserve products, creating locational reserve assignments and nodal reserve pricing and implementing operating reserve demand curves.

However, in her presentation at the July 17 meeting, Lisa Morelli, manager – Real-Time Market Operations, said that nodal reserve pricing will require additional investigation to confirm its feasibility. The task force will examine the feasibility later; in the short term, it will consider more flexible sub-zone modeling pricing.

Several stakeholders questioned whether the enhancements would result in a shift from the capacity market to the energy market. Bresler said that while such a shift is likely, it is not a goal of the proposals.

Some also expressed a desire to explore the practical consequences for customers before deciding on proposals.

Bresler said he was committed to providing simulations “if and when we get to the best set of market rules,” but stressed the importance of making a decision based on the best market design, not its consequences.

Members reviewed a spreadsheet they had requested detailing the various differences among capacity, 10-minute reserves and 30-minute reserves.

Vince Stefanowicz, senior lead engineer – Generation, presented an update of the Operating Committee’s endorsement of certain aspects of PJM’s proposal to create a real-time, 30-minute reserve product.

The ORDC was the focus of two other presentations: One 54-slide review of supplemental information and adjustments to the ORDC for operator actions.