Citing Feb. ERCOT Pricing, PJM Says Administratively Limiting Prices Under Sustained Extreme Price Conditions "Could Be Helpful" To Limit Unnecessary Risk To Market Participants And Consumers

In a response to the Independent Market Monitor's state of the market report, PJM said that, "PJM believes that provisions to administratively limit prices under sustained extreme price conditions could be helpful to limit unnecessary risk to market participants and consumers."

In March 2019, PJM filed a set of market rule changes to revise its reserve market design. PJM said in its response that the objective of these changes was to more appropriately model and value reserves in the markets by altering the shape of the Operating Reserve Demand Curves (ORDC) used to set the demand and willingness to pay for certain levels of reserves. FERC approved these changes in May 2020, and PJM is targeting their implementation in May 2022.

"A likely outcome of these changes is higher energy and reserve prices under the new proposal than exist under the current rules for the same operating conditions," PJM noted in its response

PJM noted in its response that, "In February 2021, the Electric Reliability Council of Texas (ERCOT) experienced extreme weather conditions that resulted in very high energy prices, approximately $9,000/MWh, for over three days. Given this event, and the context of the aforementioned changes to the reserve market design, PJM and certain stakeholders question whether provisions should exist in PJM that cap energy and reserve market prices during a sustained operational emergency event. The market design following the May 2022 implementation could result in prices that expose market participants to extreme financial risk during such periods."

PJM said in its response that, "PJM believes that provisions to administratively limit prices under sustained extreme price conditions could be helpful to limit unnecessary risk to market participants and consumers. PJM also supports implementation of these provisions coincident with the May 2022 implementation of the reserve market enhancements."

PJM said in its response that it believes the following questions are important areas for stakeholder discussion on this topic.

1. What should be the objectives of any such administrative pricing provisions?

2. What are the appropriate thresholds for triggering the administrative pricing provisions?

3. Are there additional operational authorities that PJM should have to maintain reliability in such circumstances given that market signals will be muted?