PJM Approves Final Price Formation Revisions, Will Move Forward With FERC Filing

The PJM Interconnection Board of Managers has approved filing the PJM reserve price formation proposal with FERC under Section 206 of the Federal Power Act.

In a market notice, PJM said that the PJM proposal, largely based on the PJM staff proposal, contains the following components:

• Consolidation of Tier 1 and Tier 2 Synchronized Reserve products

• Improved utilization of existing capability for locational reserve needs

• Alignment of market-based reserve products in Day-Ahead and Real-Time Markets

• Downward-sloping Operating Reserve Demand Curves (ORDCs) for all reserve products

• Increased penalty factors to ORDCs to ensure utilization of all supply prior to a reserve shortage

The market notice said that the Board has directed PJM to file this proposal with the following two adjustments:

• The Board directed PJM to adjust its assumptions regarding generator forced outage rates used in the determination of the ORDCs based on feedback received from the Independent Market Monitor.

• The Board directed PJM to take the necessary steps to increase the cap on the quantity of demand response that may be assigned as Synchronized Reserve to 50 percent of the requirement.

In a subsequent market notice, PJM clarified that, "the proposal the Board directed PJM to file with FERC does not include the simulation-based, transition adjustment to the E&AS offset utilized in the RPM capacity market."

In such subsequent market notice, PJM also clarified that, "Further, the proposal will be to implement the $2,000/MWh penalty factor as the basis for the demand curves for all reserve products, as opposed to a lower penalty factor for any initial years."

PJM said that it will review the agreement language with stakeholders prior to filing. PJM expects the filing to occur in the next few weeks.