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PJM market monitor calls for more transparency in LMPs

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


PJM market monitor calls for more transparency in LMPs

The 's independentmarket monitor called for more transparency about how transmission constraintsaffect power prices, because locational marginal prices in the current systemdo not reflect marginal generating unit offers.

Duringthe PJM Members Committee Information webinar Sept. 26, Joseph Bowring,president of Monitoring Analytics, PJM's IMM, focused his presentation ontransmission cost penalty factors, which in nodal markets are a cost"reflecting local scarcity" at a transmission constraint when a gridoperator violates line limits under certain circumstances.

"Forsome reason, PJM has said publicly that it is not doing that," Bowringsaid. "In fact, they are. Our recommendation is for more transparency."

LMPsshould reflect offers of marginal generating units, but Bowring said the systemPJM uses results in LMPs that "are not the result of actual offers of anygenerating unit."

AdamKeech, executive director of PJM market operations, said PJM's pricing softwareexplicitly does not use a transmission constraint penalty factor to set pricesbut instead uses "constraint relaxation logic" which temporarilyraises the line load limit at a constraint to the point that power can flow,and the resulting price is at or below what would be the penalty factor.

"Youcan end up with a scenario where it looks like a penalty factor setsprice," Keech said. "There are always complexities about identifyingthe marginal unit itself."

Impacton prices, volatility unknown

Inresponse to questions from Members Committee Vice Chairman Susan Bruce, anattorney at McNees Wallace & Nurick, Bowring said he could not estimate theeconomic magnitude of the issue or whether a transmission constraint penaltyfactor or "constraint relaxation logic" might result in more pricevolatility.

Bowringsaid he will discuss the issue with PJM staff to determine the next steps inhis effort to have transmission constraint costs more explicitly reflected inprices.

Augustprices reflect extraordinary heat: economist

Thewebinar also included a market report by Jennifer Freeman, senior economist inPJM's market analysis division, who noted that PJM's load-weighted averagelocational marginal price in August was $35.59/MWh, up from $32.53/MWh in Julyand $30.08/MWh in August 2015.

Freemanattributed this August's higher prices to above-average power demand, driven byextraordinarily warm weather, as evidenced by cooling degree days that were"well above historic averages."

"Wehad a lot of very high and sustained heat in August," Freeman said.

PJM'senergy supply totaled about 80 TWh this August, up from about 77 TWh in Julyand about 71 TWh in August 2015. The monthly average for August was about 74TWh, according to graphs in Freeman's presentation.

CDDsthis August were about even with July's number, but about 31% more than theAugust average and about 34% more than August 2015's total.

PJMsystem operations senior director Kenneth Seiler said PJM had eight hot weatheralerts this August, compared to 14 hot weather alerts in July and three inAugust 2015.

Mark Watson is a reporter forS&P Global Platts which, like S&P Global Market Intelligence, is adivision of S&P Global Inc.