Acknowledging they were taking what several called “a leap of faith,” stakeholders last week endorsed PJM’s plan for cutting uplift and capturing reserve costs in energy prices.
The Market Implementation Committee voted 118-48 in favor of the PJM proposal, with 37 members abstaining.
While all who spoke said they endorsed the goal of reducing uplift, some stakeholders said they were concerned that the plan would unfairly penalize load and potentially increase overall costs.
It would increase day-ahead and real-time reserve requirements when hot- or cold-weather alerts or max emergency generation alerts are issued for the RTO or for either the Mid-Atlantic-Dominion or Mid-Atlantic regions.
The adder for day-ahead reserves would be set at 3% of forecasted load, boosting reserves from 6.27% to 9.27%. The real-time reserve adder would be equal to the default Mid-Atlantic-Dominion (MAD) synchronized reserve requirement of 1,300 MW.
The increased reserves would be reflected in market clearing engines, ensuring that the costs go into Locational Marginal Prices and not uplift.
The adders would be reduced or cancelled if scheduling the additional resources causes difficulty managing the area control error (ACE).
Simulation Not Possible
PJM had hoped to provide members a simulation to illustrate the impact of the changes but was unable to do so. “We don’t have a system that can create real-time [simulations] in the granularity that real time occurs,” said Adam Keech, director of wholesale market operations. Although PJM calculates LMPs every five minutes, the “perfect dispatch” tool that would be used for the simulation can only calculate by the half-hour.
Instead, officials showed the MIC a range of impacts the new practices might have had on eight days in January that resulted in almost $343 million in uplift.
The projection assumed that lost opportunity costs, a component of uplift, would increase by the same percentage that total uplift decreases. Keech said that assumption was an “intuitive” guess, acknowledging, “It’s probably not a one-to-one relationship.”
On Jan. 27, the worst day of the month, uplift totaled $76 million while LOC was $2.1 million. If the change offset 5% of uplift, it would have resulted in net savings of $3.7 million. If the change reduced uplift by 50%, the savings would have been $37 million.
Keech said the impact of the changes will vary daily depending on “how much uneconomic generation … we have on the system that we can soak up.”
MRC Vote
The Markets and Reliability Committee will vote on the changes May 29. But because the new procedures involve only changes to Manual 11, PJM could implement them unilaterally even without stakeholder support.
PJM officials said they plan to implement this “short-term” fix in time for summer and consider other long-term changes that would entail Tariff changes later.
Dan Griffiths, executive director of the Consumer Advocates of PJM States (CAPS), said he wanted to see more examples to be convinced of PJM’s assurances that the changes will only capture actions PJM operators are already taking when weather emergencies mandate “conservative operations.” He said he was concerned the new rules could result in PJM invoking shortage pricing more often.
“It’s a leap of faith we’re being asked to take,” said Dave Mabry, of the PJM Industrial Customers Coalition. “We’re just not sure that we’re [not] going too far.”
Worst Uplift Ever
Keech said PJM was responding to concerns voiced by many stakeholders. “We’re coming off a winter with the worst uplift we’ve ever seen,” he said.
Dave Pratzon of GT Power Group defended PJM, saying the proposal had come out of a “full, robust stakeholder discussion.” (See Members Split Over Change in Reserve Procedures.)
Jung Suh of Noble Americas said PJM’s proposal was a reasonable solution to a major problem. “We’ve seen the uplift charges this winter. It was real. It was painfully real.”
Suh said uplift over the summer will be lower than the past winter, allowing an opportunity to test the effectiveness of the new procedures under less stress. “This makes sense,” Suh said. “I don’t think we should go into the winter with an untested proposal.”
Louis Slade of Dominion said his company could not support the changes because it shifts cost allocation in a way “that’s not in line with cost causation.”
David “Scarp” Scarpignato of Direct Energy agreed, saying it was unfair to charge load for costs it didn’t cause. He noted that synchronized and primary reserves are intended to replace units that trip off line. “That’s why [reserve targets] are based on the largest single contingency,” he said.
“I do fear that the short-term solution becomes the long-term solution when there’s no consensus on a long-term solution,” he added. “… We’ve seen that a bit.”
Keech said changing the cost allocation would require a Tariff change and could not be completed before the summer.
For more information:
PJM Contact: Lisa Morelli
