Members Reject Compromise Proposal to Revamp Reserve Pricing Rules

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A compromise proposal to revise PJM’s energy reserve pricing rules failed to win two-thirds support in a sector-weighted vote at a special session of the Members Committee Wednesday, leaving the potential for the Board of Managers to pursue its own filing with the Federal Energy Regulatory Commission.

Stu Bresler, senior vice president – Operations and Markets, said after the vote that PJM would recommend the Board file a proposal in line with its staff proposal, one of five plans previously rejected by the Markets and Reliability Committee.

Bresler noted the PJM proposal would reflect certain changes influenced by “compelling arguments” made in stakeholder discussion since Dec. 5, when the Board imposed a Jan. 31 deadline for members to reach consensus on rule changes.

For example, he said, staff will rethink the inclusion of a transition mechanism for the Capacity Market Energy and Ancillary Services Offset to reflect expected changes in revenue in the determination of Net Cost of New Entry.

After all, he said, the Energy and Ancillary Services Offset was designed on a rolling three-year average to ensure that the Capacity and Energy markets worked together over the long term, not as a predictor of future market conditions for any particular year.

The Presented Proposal

The compromise proposal was presented by Calpine, whose own package had garnered the most support at the Energy Price Formation Senior Task Force, the group of members who had worked the issue for about a year. The new plan incorporated much of the PJM proposal along with an alternative offered on the floor of the Jan. 24 MRC meeting by Vistra Energy. It then added several more items.

In all, it addressed five of the six reserve pricing issues delineated by the Board – it made no adjustment to the Capacity Market regarding Energy and Ancillary Services.

In its Dec. 5 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.

Some members had bristled at the imposed deadline, but the members worked feverishly through January in a series of meetings, scheduling Wednesday’s additional session of the Members Committee to come up with a proposal before the PJM Board meeting next week.

Before the vote, several members described the proposal as a true compromise, with all sector representatives involved in the informal negotiations ceding key points. They complimented Calpine’s efforts and the process itself, holding it up as an example of how members can tackle contentious issues and sacrifice for the sake of the greater good.

Two members moved to call a voice vote, but another requested a sector vote, in which members cast their ballots privately through a computer program.

Stunned silence followed the display of the tally: 61 for, 44 against, for a sector-weighted vote of 3.15 (63 percent), short of the 3.34 threshold (about 67 percent) necessary to pass. Two members who had complimented the process immediately moved to adjourn the meeting.