Reserve Pricing Reform Work Continues

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Stakeholders continued working on reserve pricing reform Friday, but expressed doubt that they would have a consensus proposal ready by the Jan. 31 deadline given by the PJM Board. 

In a December 2018, letter, the PJM Board directed stakeholders to develop a solution by the end of January, or in the absence of a proposal by that time, the Board would make its own filing to the Federal Energy Regulatory Commission (FERC).

PJM CEO Andrew L. Ott has stated that the existing method for pricing reserves and energy does not accurately align the procurement of reserves with their reliability value and does not truly reflect the cost of serving customers, especially when the system is stressed. 

A key part of the equation that is out of sync is uplift payments. These are out-of-market payments made to generators so they can recover their costs under specific conditions when PJM instructs them to change their operating schedule to make sure the system can meet demand.

PJM has looked at reserve markets in other regions where design changes have been effectively implemented, and a number of those elements were included as guidelines in the Board’s letter.

The sense of the stakeholders at Friday’s Energy Price Formation Senior Task Force was that – given the timeframe – they are unlikely come up with something that would pass a sector-weighted vote at the January Markets & Reliability Committee.  

Dave Anders, director – Stakeholder Affairs, reviewed the task force work plan and broached the possibility of voting or polling the different proposals in between meetings.

Stakeholders pointed out the difference between voting at the task force level and the more stringent requirements at the standing committee level. One stakeholder said she would “be shocked” if there was a consensus.

Nonetheless, they also were in favor of conducting some sort of polling or voting, if only to provide PJM and the Board a sense of where the stakeholders stood by the end of the month. One stakeholder said that many of stakeholders care deeply about this issue and they need to determine what would be most useful for the Board in terms of how it might craft its FERC filing.

Stakeholders debated the PJM proposal and enhancements to four stakeholder packages. PJM presented four elements of its proposed reserve market architecture: $2,000 penalty factor for operating reserve demand curve; day-ahead operating reserve demand curve; reserve products interaction, and the basics of 30-minute reserves.

Stakeholders also heard updates of market enhancement proposals from Monitoring Analytics, Office of the People’s Counsel for the District of Columbia, Wilson Energy Economics and Calpine.

The next three meetings are Jan. 11, 17 and 23 (Jan. 11 and 17 meetings are scheduled from 9 .a.m. to  noon). Stakeholders are encouraged to register for the meetings to ensure they receive updates on future topics. These include reserve market alignment and other implementation specifics. Stakeholders can send their feedback to Anders or Vijay Shah.