Members Set One Last Forum for Reserve Pricing Compromise

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Correction: In the previous version of this story, the author of the fifth energy reserve pricing proposal was misidentified. It is Vistra Energy.

PJM members on Thursday rejected five proposals to revise energy reserve pricing rules, but agreed to convene one last time before the February meeting of the Board of Managers in the hope of devising a compromise.

The PJM Board in December gave members a Jan. 31 deadline to address six reserve pricing issues before it plans to file its own proposal with the Federal Energy Regulatory Commission (FERC). At that time, the Energy Price Formation Senior Task Force had been deliberating nearly a year without reaching consensus on a path forward.

After receiving the Board directive, the task force met five more times and developed four proposals, sponsored by PJM; Monitoring Analytics, the independent market monitor; Calpine; and the Office of People’s Counsel for the District of Columbia (DC-OPC). 

At the Markets and Reliability Committee (MRC) meeting Thursday, none succeeded in garnering the two-thirds majority necessary to be taken up by the Members Committee later in the day. A fifth proposal, moved at the meeting by Vistra Energy, also was rejected.

Out of options, members voted to hold a special Members Committee meeting no later than Feb. 8 – after the Board’s stated deadline, but before the Board meets – for a last chance at compromise.

Consensus – or lack thereof – will make the difference between whether PJM submits a Section 205 or a Section 206 filing to FERC. A 205 indicates member consensus and does not obligate the filer to prove that current provisions are not just and reasonable. A 205 filing requires FERC to respond within 60 days. A 206 filing is made unilaterally by PJM, which must prove current provisions are not just and reasonable, and does not require FERC to act within a timeline.

Stakeholders prepare to vote

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 incent consistent response when reserves are needed, according to the Board’s letter. This mismatch can lead to hefty uplift payments. Uplift payments are additional compensation provided to generators that alter their operations at PJM’s instruction to meet electricity demand. Uplift payments are not reflected in energy prices.

The issues most debated among the proposals were: the shape of the Operating Reserve Demand Curve, which plots the probability of reserves dipping below the minimum reserve requirement; how much to raise the penalty factor from the current $850 per megawatt hour; and how to transition energy and ancillary services revenue from the capacity market to reflect expected changes in the net cost of new entry. (See Task Force to Vote on Energy Reserve Price Formation Proposals Jan. 23.)

At the MRC meeting, Monitoring Analytics’ plan was most popular, garnering 52 percent (2.6 out of 5) support in a sector-weighted vote, but still fell well shy of the 67 percent (3.34 of 5) needed to pass.

The Vistra proposal, which set the default penalty factor at $1,000 and included no energy and ancillary services offset, failed with 2.22 out of 5 support, or about 44 percent.

Calpine’s proposal – which had topped the vote at the task force meeting – came in third, with 44 percent support (2.19 out of 5).

PJM’s proposal received about 31 percent support (1.57 out of 5) in sector-weighted voting.

The DC-OPC plan remained least popular, with nearly 12 percent support (0.59 out of 5).

Planning for Transmission Replacement

Also at Thursday’s MRC meeting, members endorsed changes to Manual 14B: Region Transmission Planning Process. The changes were proposed by American Municipal Power and Old Dominion Electric Cooperative to address PJM’s planning process for the replacement of transmission facilities. The changes aimed to enhance “openness, transparency, information exchange and comparability” of supplemental projects included in PJM’s Regional Transmission Expansion Plan (RTEP), according to the proposal.

Such projects are driven by transmission owners and are not required for compliance with PJM criteria for reliability, operational performance or economic efficiency, nor are they state public policy projects.

AMP’s proposal, including a friendly amendment from LS Power, was endorsed in a sector-weighted vote of 3.46 out of 5 (about 69 percent). However, following the vote, Steve Herling, vice president – Planning, said PJM would not be implementing the manual changes because they are not consistent with how FERC has described PJM’s role. PJM has exclusive purview over its manuals and is not required to introduce stakeholder-requested changes.

Instead, PJM will be adopting its own plan to address concerns raised by stakeholders. This includes noting that the term “useful life” refers to the ability of a facility to continue to be reliable and operationally effective and is not intended to be limited to accounting principles associated with depreciation of assets.

LS Power moved to have its friendly amendment considered as an independent motion. It would remove from the RTEP proposed supplemental projects that have been rejected by a state commission or similar siting agency pending any appeals process. By a favorable 3.69 sector-weighted vote (about 74 percent), members approved LS Power’s motion to defer a vote until the Feb. 21 MRC meeting.