PJM Board Directs Staff to File Reserve Pricing Proposal

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The PJM Board of Managers directed PJM staff to file with the Federal Energy Regulatory Commission (FERC) a proposal to address concerns with PJM’s energy reserve pricing rules, a letter to PJM stakeholders from President and CEO Andy Ott stated Wednesday.

The filing will be made under Section 206 of the Federal Power Act. The decision comes after PJM members failed to reach a consensus on a compromise proposal that was voted on at a Special Members Committee meeting Feb. 6. The Board asked PJM to file a proposal in line with the staff proposal, while reflecting certain changes influenced by stakeholder discussions and feedback.

In the letter, Ott acknowledged the hard work of stakeholders “in debating the difficult and complicated issues around reserve pricing.”

The PJM proposal contains the following components:

  • Consolidation of Tier 1 and Tier 2 Synchronized Reserve products.
  • Improved utilization of existing capability for locational reserve needs.
  • Alignment of market-based reserve products in Day-Ahead and Real-Time Markets.
  • Downward-sloping ORDCs for all reserve products.
  • Increased penalty factors to ORDCs to ensure utilization of all supply prior to a reserve shortage.

The Board directed PJM staff to file this proposal with the following two adjustments:

  • The Board directed PJM to adjust its assumptions regarding generator-forced outage rates used in the determination of the ORDCs based on feedback from the Independent Market Monitor.
  • The Board directed PJM to take the necessary steps to increase the cap on the quantity of demand response that may be assigned as Synchronized Reserve to 50 percent of the requirement.

In a subsequent message to stakeholders on Wednesday, Stu Bresler, senior vice president – Markets and Operations, noted that the proposal the Board directed PJM to file does not include the simulation-based, transition adjustment to the Energy and Ancillary Services (E&AS) offset utilized in the capacity market.  Further, the proposal will be to implement the $2,000/MWh penalty factor as the basis for the demand curves for all reserve products, as opposed to a lower penalty factor for any initial years.

PJM will review the agreement language with stakeholders prior to filing, Ott said.