PJM won stakeholder approval of its short-term plan for capturing reserve costs in energy prices after agreeing to a sunset provision that won over load representatives.
The Markets and Reliability Committee initially rejected PJM’s plan by a 49-64 vote, with only a single vote from End Use Customers and none from Electric Distributors.
The committee then approved by an 87-4 margin an alternative proposed by Direct Energy’s David “Scarp” Scarpignato that would sunset the plan on Sept. 30, with PJM filing a proposed long-term solution with the Federal Energy Regulatory Commission Oct. 1. Later in the meeting, the MRC also approved a problem statement on the long-term solution.
The Market Implementation Committee had approved the PJM proposal — which is intended to reduce uplift costs — by a more than 2-1 margin last month. The approval came despite concerns it would unfairly penalize load and could increase overall costs. (See PJM Reserve Proposal OK’d Despite Misgivings.)
Critics repeated those concerns at the MRC meeting Thursday. Scarp said that by putting the cost of reserves into LMPs, which are borne by load only, the proposal violated cost-causation principles. “Generators failing to start, at least today, they pick up some of that” cost, he said.
Ed Tatum of Old Dominion Electric Cooperative agreed. “We feel that we’re rushing into a solution that will have dire unintended consequences,” he said. “All of the sudden load is going to start picking up [the cost of] operational problems.”
Tatum also questioned how such a significant change could be accomplished by only a manual change, rather than a Tariff change that would require FERC approval.
Harry Singh of Goldman Sachs acknowledged that the increase in LMPs is likely to exceed the uplift costs because marginal costs are higher than average costs. But he said the LMP costs can be hedged, unlike uplift.
After the first vote failed, members quickly coalesced around Scarp’s proposal, for which he had been building support for weeks.
The sunset proposal “moves the ball forward,” Executive Vice President of Markets Andy Ott said. “It gives us a chance to evaluate the impact [of the change] during the summer. It’s a workable way forward while still respecting the concerns raised.”
Plan Described
PJM’s short-term plan 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 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.
Long-Term Solution Sought
The MRC also approved a problem statement and issue charge giving the Energy and Reserve Pricing and Interchange Volatility (ERPIV) stakeholder group authority to develop long-term solutions to the problem, which would likely involve Tariff changes and revisions to PJM software. The expansion of the ERPIV charter passed by acclamation.
