Electricity Markets

PJM price formation plan faces opposition from large group

The PJM Interconnection’s proposed revisions to its reserve market price formation should be rejected by the Federal Energy Regulatory Commission because, among other things, there is no crisis requiring major changes to the design of the reserve market, the American Public Power Association and multiple other parties recently argued.

The Association on May 15 joined a large group protest of PJM’s proposed changes to its reserve market price formation, which was filed with FERC on March 29. PJM submitted its proposal in two separate filings pursuant to Section 205 of the Federal Power Act and Section 206 of the FPA.

The protesting parties pointed out that the proposal was made by PJM despite PJM’s failure to obtain stakeholder approval.

“PJM has been unable to convince a requisite majority of stakeholders to support major changes to the design of the region’s reserve markets,” the Association and other parties to the protest said.

“Stakeholder resistance to the proposed changes is understandable: PJM is currently procuring more than sufficient reserves, uplift costs are relatively minimal, and no substantial change to either circumstance is reasonably foreseeable.” 

PJM has “nonetheless forged ahead, taking the unusual step” of filing a complaint against itself with the Section 206 filing, and arguing that its own rules are unjust and unreasonable. “In place of the current rules, PJM seeks approval of an enormously expensive and misguided replacement design. PJM’s complaint and PJM’s companion Section 205 filing should be rejected,” the Association and the other protesting parties said.

Along with citing the lack of any crisis that would require major changes to the design of the reserve market, the protest said that the Section 206 complaint should be rejected on several other grounds.

For example, there has been “no showing that anticipated resource mix changes require reserve market rule changes. PJM has not demonstrated that, absent a change in the reserve pricing mechanism, an anticipated increase in the percentage of intermittent resources in the PJM resource mix will result in an insufficient procurement of the reserves needed to maintain system reliability.”

Also, the Association and other parties to the protest said that the grid operator has not demonstrated that its current Operating Agreement results in energy and reserve market prices that are unjust, unreasonable, or otherwise fail to compensate generators fairly.

Moreover, FERC “should exercise restraint and not undertake additional changes to the PJM markets until changes to other aspects of PJM’s market design currently in process are implemented, their effects are understood, and PJM has demonstrated the need for additional changes.”

If the Commission does not deny PJM’s proposal outright, FERC should set the proceedings for evidentiary hearing, the protest said.

It also asks that if the Commission, either before or following an evidentiary hearing, determines that the existing reserve market rules are unjust, unreasonable, or unduly discriminatory or preferential, then FERC should reject PJM’s proposed tariff and Operating Agreement changes in favor of alternatives described in the protest that would not entail the same level of harm to consumers.

Also, because the proposal allows for double recovery of the increased energy and reserve market revenues and capacity market earnings, if the Commission were to approve PJM’s proposal, it should also require PJM to implement a forward-looking Energy and Ancillary Services revenue offset to protect against such double-recovery, the protest said.

Along with the Association, other parties signing on to the protest were American Municipal Power, Inc., the Public Power Association of New Jersey, the PJM Industrial Customer Coalition, Southern Maryland Electric Cooperative, Inc., and a number of PJM state commissions and consumer advocates.