Saturday, March 23, 2019

PJM, Monitor Remain at Odds over Energy Market Proposals

By Rory D. Sweeney

Roughly a year into the discussion and months past the deadline requested by PJM’s Board of Managers, details of potential changes to the RTO’s energy market remain anyone’s guess.

At Wednesday’s meeting of the Energy Price Formation Senior Task Force (EPFSTF), PJM reintroduced a substantially altered proposal for revising its operating reserve demand curve (ORDC), and both the RTO and its Independent Market Monitor revised their proposals for the allowable synchronized reserve offer margin adder. A new proposal submitted by the D.C. Office of the People’s Counsel would largely maintain the current two-step curve but include some revision details from proposals by both PJM and the Monitor. (See Skepticism Lingers Around PJM Price Formation Goals.)

Attendees at last week’s EPFSTF discuss proposal specifics. | © RTO Insider

PJM revised its ORDC proposal to account for the impact of units’ regulation requirements, shifting its proposed curve to the left and more in line with the current two-step ORDC for synchronized reserves. The current curve escalates from $0/MWh to $300/MWh at 1,590 MW, and the new one escalates gradually from $0/MWh at roughly 2,750 MW to $265/MWh at 1,575 MW. PJM’s original proposed revisions began escalating from $0/MWh at roughly 3,500 MW and reached $265/MWh at 2,100 MW. The revised proposal means that the value of synchronized reserve megawatts will be less until the reserve drops to the minimum reserve requirement (MRR), which remains $850/MWh.

PJM also revised its proposed margin adder down substantially. The current adder is $7.50/MWh, but PJM said the calculation should instead be based on the expected value of the penalty resources pay if they receive a synchronized reserve obligation and fail to perform during an event. For 2017, that value was 1 cent/MWh, and so far in 2018 it’s been 2 cents/MWh. Rather than setting it at $0, PJM argued that it should be allowed to change as clearing prices change.

PJM’s revised ORDC proposal | © PJM

Monitor Revisions

The Monitor’s revised ORDC proposal includes a temporal concept meant to factor in the expected cost of a unit commitment to maintain the reserve requirement in the future. Instead of happening over 30 minutes to provide reserves necessary for 10 minutes in the future, as PJM has proposed, the Monitor’s proposal would look forward until the next expected demand peak based on historical load patterns.

The resulting curves have seasonal variations but rarely extend past $60/MWh before hitting the MRR.

The Monitor revised its adder proposal from a “compromise” of $3.80/MWh — which it now finds “unjustified” — to $0/MWh and recommended that penalties should extend back to the last reserve event when the resource performed to its full obligation but no longer than 12 months.

The Monitor also added a new option to the matrix that would include the changes to the synchronized reserve market but reserve the discussion on the ORDC to the second stage of EPFSTF, including discussion of the relationship between the day-ahead reserve products and real-time reserve products.

Stakeholder Reaction

Stakeholders appeared unconvinced by either proposal. Carl Johnson, representing the PJM Public Power Coalition, said the measuring stick for whether the RTO’s proposal is successful should be its impact on uplift payments.

“If uplift doesn’t go away, we’ve got a problem,” he said.

PJM’s Adam Keech agreed, saying, “I think zero uplift is a good target.”

The Monitor disagreed, however. Monitor Joe Bowring noted several market mechanisms that create uplift that aren’t addressed in the proposal.

“We think some uplift is necessary,” Monitor staffer Catherine Tyler said.

PJM and the Monitor also disagreed with some stakeholders over what the overall goal of the changes should be.

“The goal isn’t to have the lowest prices possible,” Keech said. “The goal is to reflect what the system operators are doing. We’re trying to drive to prices that reflect the system operators’ needs.”

Bowring said the “objective of markets is to have the lowest prices possible for the defined product, but no lower.”

Stakeholders and PJM staff questioned whether the Monitor’s ORDC proposal was more about addressing scheduling issues than generation scarcity.

“This is compensating to some extent for the lack of scheduling tools,” Tyler acknowledged. “However, what we do see in the market now is an operator looking ahead and seeing a need for reserves in the future, and we don’t have a market tool to address that.”

Vote Delayed

PJM’s Dave Anders, who is facilitating the task force, summed up the day by quashing any question about whether stakeholders may be ready to decide.

“It’s been a fluid situation with respect to proposals. I don’t know that we’re ready to vote,” he said, noting that PJM staff will update the board at its meeting this week.

Bowring pointed out that if the initial vote had happened when PJM had initially requested the vote, its proposed demand curve would have been substantially higher than with its revised ORDC presented for the first time at this meeting.

While no one questioned the decision, stakeholders differed on whether a vote should come sooner or later. Some expressed concern that further delay risks the board deciding to approve revisions without waiting for stakeholders’ advice.

Stakeholders have already missed the board’s request to receive stakeholder endorsement for some changes by the third quarter, which could have already allowed for FERC approval and implementation for this winter. (See PJM Board Seeks Reserve Pricing Changes for Winter.)