LMP pricing history at EPF Task Force  


More than 100 stakeholders, in person and via WebEx, attended an in-depth presentation of “The History of LMP Pricing Development and Origins of Fixed Block Pricing,” by Scott Harvey of FTI Consulting at the fourth meeting of the Energy Price Formation Senior Task Force, held Monday.

Over his years in economic consulting, Harvey has been involved with the restructuring of the PJM, New York and New England power pools, as well as the development of the California ISO’s MRTU market design. Monday’s presentation, he said, reflected his personal thoughts on lessons learned since the 1990s.

Among the topics covered were the goals of establishing locational marginal pricing:

  • Heed FERC’s landmark Order 888 to provide open access to the transmission system while using prices that reflected the actual cost of meeting load
  • Foster a pricing system that would support reliability by providing financial incentives to follow system dispatch instructions
  • Provide a price signal that would efficiently align actions by consumers and suppliers with system conditions

Asked by one stakeholder if those goals remain valid, Harvey replied that they are.

Harvey also reviewed constraints on the initial LMP design, in particular tight deadlines that precluded the exploration of a number of important issues at the time.

Then there are other complex concepts – including shortage pricing and ancillary services – that weren’t on the table in the 1990s, he said.

Harvey also delved into the evolution of fixed block pricing in NYISO and lessons that have been learned from it over the years.

Adam Keech, executive director – Market Operations, led a conversation about gaps in the current pricing methodology.

He ran through a number of examples in which market prices are not reflecting operator actions, leading to incentive to deviate from PJM’s instructions.

In addition, PJM engineer Melissa Maxwell walked the group through examples of single period integer relaxation and how dispatch and pricing runs are applied.

Following substantial discussion, the group also endorsed a revised charter that included two new objectives:

  • How network models such as day-ahead, real-time and reserve adequacy commitment run work, what they do and what the sources of their inputs are in order to better understand all known constraints and be more aligned with each network model
  • Identify any improvements related to the recommended enhancements to the day-ahead, real-time and RAC run network models (including inputs and outputs)

The task force expects to review its timeline this summer and extend it, if necessary, from the original completion timeframe of the end of the third quarter of 2018.

Distributed Energy Resources Subcommittee

PJM and stakeholders reviewed design components and solution options at the most recent Distributed Energy Resources Subcommittee meeting.

Andrew Gledhill, senior analyst  – Resource Adequacy Planning gave stakeholders several informational announcements, including announcement of a Federal Energy Regulatory Commission Technical Conference on Distributed Energy Resources on April 10 and 11.

PJM likely will use special sessions of the Market Implementation Committee to work with stakeholders on FERC Order 841, Electric Storage Participation in RTO/ISO Markets.

There will be some overlap with existing wholesale DER work in the subcommittee, primarily related to metering and accounting practices needed to settle wholesale energy storage when connected on the distribution system or behind a customer’s meter.

Andrew Levitt, senior market strategist – Emerging Markets, presented PJM’s second draft proposal for energy market participation at sites with both curtailment and wholesale DER, which take an integrated approach.

Levitt and stakeholders then followed up breaking down metering and accounting responsibilities, and PJM presented several scenarios. Topics covered included reporting data flow in the energy market, the anticipated impacts on unaccounted-for energy and roles for the sub-meter in proposed wholesale DER behind a customer’s meter.

In reviewing the solution options matrix  for energy and ancillary services, PJM and stakeholders looked at the differences – mostly in aggregation, hardware and integrated resource framework – among the status quo, PJM’s proposal and member suggestions.

PJM also solicited stakeholder feedback for a poll. The poll runs through March 19. Chair Scott Baker, senior business solution analyst – Applied Solutions, encouraged members to sign up for the subcommittee’s email distribution list because that is how PJM is distributing the poll.