PJM proposed a change in its real-time pricing mechanism, saying the current methodology is depressing energy and reserve prices.
PJM told the Market Implementation Committee Wednesday that it will propose a problem statement to consider increasing reserve requirements under certain circumstances. The revised methodology could increase reserve and real-time energy prices while reducing uplift.
Reserve requirements would be increased when operators are carrying additional resources (generation, reserves or emergency DR) to cover units at risk – for example when it is unknown whether a generator with environmental limitations will receive a waiver to continue operating.
Requirements also could be boosted when operators have data quality concerns or are uncertain about load or interchange.
Because they cannot be exact in dispatching emergency demand response or scheduling generation, operators tend to err on the side of calling on more resources than are ultimately needed. PJM cited the July 18 heat wave, when an unexpected influx of imports from New York caused prices to crash after the deployment of DR.
“It’s really a matter of having the [pricing] engine recognize these actions. Right now we don’t have a mechanism to do that,” said PJM’s Angelo Marcino.
The proposal was welcomed by several stakeholders. “LMPs have been crushed for years and years and years when DR gets called,” said David Pratzon, who represents generators.
Some other members, however, said they feared that the changes could result in overly conservative actions by PJM operators, resulting in a net increase in costs rather than just a shift.
“I would hate to see reserve requirement creep,” said David “Scarp” Scarpignato, of retail marketer Direct Energy.
“We risk over-responding,” agreed one load-serving representative.
Barry Trayers, of Citigroup Energy, said the changes could increase uncertainty. “It’s going to make it even harder for stakeholders to ascertain where we are in the world of scarcity.”
One representative said PJM also should work to incorporate intraday changes in natural gas costs. But Pratzon said PJM should act promptly on this issue and defer a wider-ranging discussion until later. “People are already making arrangements for buying and selling energy” for next summer, Pratzon said.
Market Monitor Joe Bowring said he supports PJM’s efforts but added: “The mechanics of what PJM is planning need to be made substantially more clear.”
