PJM Interconnection power generators generally supported the grid operator’s proposed reserve market design changes, while large power consumers, environmental groups and PJM’s market monitor opposed the changes for a variety of reasons, including costs.

PJM proposed to change the calculation of energy prices "but does not claim or establish that locational marginal pricing (LMP) is unjust and unreasonable or that the existing scarcity pricing rules are unjust and unreasonable” and the filing "should be rejected for that reason," Monitoring Analytics, PJM’s market monitor, told the Federal Energy Regulatory Commission in a protest.

In March, PJM filed proposed tariff revisions incorporating sloped operating reserve demand curves, which calculate the value of various types of reserves as supply and demand tighten, along with several other reserve market changes. But the market monitor said PJM failed to explain why replacing LMP "with a nontransparent and complex administrative price setting process" is necessary, or why load "should pay an increase of more than $1.7 billion per year."

Cost disagreement

A group made up of state consumer advocates, state commissions, environmental interests, municipal interests and industrial customers also opposed the reserve market changes. "In place of the current rules, PJM seeks approval of an enormously expensive and misguided replacement design," the PJM Load/Customer Coalition said in a protest.

However, Exelon Corp. argued that costs to load have been misrepresented and the market design changes could result in a multimillion-dollar total market surplus, which it defines as the total incremental social benefits net of the change in the cost of production.

"PJM’s estimate of $556 million in additional annual payments by load is misleading because it only measures the impact of PJM’s proposal on market prices and energy and reserves procurement volumes," Exelon said. The utility also pointed to a consultant’s analysis that showed PJM’s proposal would create at least $200 million of net benefits by increasing reliability through incremental reserve purchases and through reduced production costs.

The competitive power supplier trade group Electric Power Supply Association said it supports PJM’s proposal. Other stakeholders broadly backed PJM’s effort to improve its reserves market design but took issue with certain aspects of the proposal, such as lowering the offer cap and excluding demand response resources.

For instance, merchant generator Vistra Energy Corp., which said it has over 11,000 MW of generation participating in PJM’s markets, generally supports the proposal but opposes reducing the offer cap from the presently effective $7.50/MWh to 2 cents/MWh because the lower figure does not allow resources "to include some risk premium in their synchronized reserve offer." Vistra therefore asked FERC to maintain the $7.50/MWh offer cap.

Clean Energy Advocates Sierra Club, Natural Resources Defense Council and Sustainable FERC Project said they support "the broad aims PJM sets forth in its proposal," but blasted the grid operator for not including a transition mechanism that would prevent "billions of dollars in windfall profits from flowing to capacity resources at customers' expense."

Additionally, the environmental groups said the proposed market reforms fail to incorporate demand response, which discounts or limits a demand resource’s "ability to perform as reserves and respond to energy price signals."

PJM’s proposed reserve market rule changes came after an extensive stakeholder process that failed to reach an agreement and ultimately culminated it PJM’s management board deciding to file the grid operator’s proposal.

"The commentary both in favor and opposed to the reserve market reform is reminiscent of the lack of consensus exhibited during the stakeholder process," Kieran Kemmerer, power market analyst with S&P Global Plats Analytics, said in an email. In the process, load-serving entities generally express discontent with the absence of a transition mechanism to account for increased energy & ancillary Service revenues, while many generation owners remain skeptical of the effectiveness of reserve reform to properly value reserves and mitigate operator intervention, Kemmerer said. (FERC docket EL19-58, ER19-1486)

Jared Anderson is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.