The PJM Interconnection should adopt a “circuit breaker” to prevent emergency grid conditions from causing energy prices to skyrocket, which could lead to bankruptcies among market participants, retail customers and municipalities along with a loss of investor confidence in the grid operator’s markets, according to the Organization of PJM States Inc.
Annual PJM energy market revenue has ranged from $14.5 billion to $27.3 billion in the last three years. But under market rules that could be triggered under emergency conditions, daily energy costs could reach $17 billion during peak winter weather, OPSI said in a Nov. 11 letter to the grid operator’s board.
“We are concerned with the impact unpredictable events such as extreme and variable-weather events or cyberattacks could have on the bulk power system and the economics of the region,” said OPSI, which represents state utility regulators.
The PJM Markets & Reliability Committee, or MRC, on Wednesday will consider two circuit breaker proposals for possible endorsement. Any proposal would also need to be endorsed by the PJM Members Committee before it could be filed with the Federal Energy Regulatory Commission for review.
Starting in mid-2021, PJM began exploring options for creating a circuit breaker or other stop loss approach that could limit extreme pricing when the cost likely far exceeds the value of any contribution to preserving grid reliability.
The grid operator’s Energy Price Formation Senior Task Force is leading the effort.
The issue centers on PJM’s reserve penalty factors, which can increase electricity prices to $3,700/MWh, and transmission penalty factors that can be as high as $5,700/MWh. They take effect when PJM lacks adequate reserves and when power flows exceed limits in constrained areas, respectively. Those high prices could occur when PJM doesn't have enough electricity to meet demand.
The MRC is set to vote on proposed transmission penalty factor reforms broadly supported by the task force. The task force also considered seven proposed reserve penalty factor reform packages, but none gained enough support to pass, according to a summary of the proposals.
The MRC will consider one of the proposals, a joint stakeholder package developed by utilities, including Old Dominion Electric Cooperative and Southern Maryland Electric Cooperative.
The stakeholders’ proposed package is “not fully satisfactory,” but provides the best interim protections among all the proposals, including a PJM proposal that could allow PJM markets to collect $6 billion in daily energy market revenues without equal benefits, OPSI said.
“The sizable potential costs and the imperfect solutions at hand only underscore the urgent need for the PJM Board to act now on an interim circuit breaker which would serve to protect consumers and state economies from the most extreme pricing,” OPSI said.
OPSI urged PJM to “proceed without delay” to avoid potential damage to its markets before the onset of cold weather this winter. Later, PJM could adopt a permanent circuit breaker solution, the group said.
OPSI said PJM needs flexibility and tools to deal with the “unknown, unique, and force majeure events” that could trigger circuit breaker actions.
The PJM board will respond to OPSI at a later date, which is the grid operator’s usual practice, Jeffrey Shields, PJM spokesman, said.
PJM operates the grid and wholesale power markets in 13 Mid-Atlantic and Midwest states and Washington, D.C.