Members Engage in Uncommon Preview of FERC Filing to Revise Reserve Pricing Rules

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Stakeholders participated Thursday in a public preview of tariff revisions to be filed with the Federal Energy Regulatory Commission (FERC) proposing to revamp reserve pricing rules.

The exercise was unusual in that it occurred after the Board of Managers directed staff to make a filing when a stakeholder proposal failed to receive stakeholder support. Members generally are not consulted on filing language for proposals that do not receive stakeholder endorsement.  However, members had requested a viewing of the tariff revisions, and the last time the membership faced an impasse on a consequential issue – when PJM implemented Capacity Performance rules several years ago – PJM identified in its Lessons Learned review an opportunity to engage stakeholders prior to filing with FERC, said Dave Anders, director – Stakeholder Affairs.

Thursday’s presentation, which also marked the final meeting of the Energy Price Formation Senior Task Force clarified points that emerged as staff fleshed out the details of the conceptual proposal, Anders said.   

Over nearly five hours, staff went page-by-page through the 165-page proposal. Members’ comments regarding clarity and word changes will be considered for inclusion. Anders emphasized that the document presented Thursday was not final.

Staff presented seven areas of the proposal that have evolved since the proposal was last discussed with stakeholders:

  • Demand Response procurement will be capped at 50 percent instead of the previously recommended 33 percent
  • How EFORds (equivalent demand forced outage rates) are reflected in the Operating Reserve Demand Curve
  • The calculation of lost opportunity cost for offline resources
  • Self-scheduling ability for secondary reserves
  • Real-time treatment of inflexible resources with a day-ahead reserve commitment
  • Secondary reserve non-performance penalty
  • Balancing reserve market settlements

The Board of Managers directed the filing after members failed to reach consensus on a plan.

In a Dec. 5, 2018, letter, the Board said PJM’s existing method of pricing reserves does not accurately reflect the cost of serving customers, especially when the system is stressed, and doesn’t provide price incentives for consistent response when reserves are needed.

The inaccurate price signals can also lead to hefty out-of-market uplift payments – compensation for generators that change their operations at PJM’s instruction to meet electricity demand. The letter instructed members to revisit the issue, giving a Jan. 31 deadline for a consensus plan that never materialized. PJM expects to file its proposal by the end of March.