PJM: Reliability strong during January cold snap, but pricing reforms needed
- PJM Interconnection has analyzed system performance during a cold snap from Dec. 28, 2017, thru Jan. 7, 2018, and concluded previous adjustments made in the wake of the 2014 Polar Vortex have been effective.
- Both the grid and generation fleet performed well during the so-called "bomb cyclone," and even during peak demand there were excess reserves and capacity. However, PJM reported an 11-fold increase in uplift charges, which are paid to generators when locational marginal prices (LMP) do not cover the costs of serving load.
- The grid operator has proposed changes in both energy and capacity markets, seeking to reform how prices are sent in an attempt to minimize uplift charges. Regulators have expressed skepticism to some proposals, saying the energy market plan in particular would fundamentally alter price formation.
Price reforms may be needed, but PJM says reliability was not an issue during this winter's frigid cold snap.
It was the coldest stretch since the 2014 Polar vortex, when widespread generation failures led to PJM market and reliability reforms. While the grid performed admirably, the operator said there are indications changes are still needed to ensure reliability and fair pricing during extreme weather events.
The report concludes the spike illustrates the need for pricing reforms for both energy and reserves. The report calls for the grid operator and stakeholders to evaluate and implement reforms addressing reserves, enhancements to shortage pricing, and the calculation of LMP.
On Jan. 5, 2018, demand reached 137,522 MW — the sixth highest overall winter peak demand on PJM's system. But during the frigid temperatures, there was excess energy available. Even so, uplift charges rose to $4 million a day, which PJM says is due to such charges being relatively low over the past several years. The high uplift charges have spurred PJM on its quest to push for repricing reforms, which have proven controversial among its stakeholders.
“We must enhance market pricing so that prices accurately reflect the cost of serving load including the actions taken by dispatchers,” PJM President and CEO Andrew Ott said in a statement. “The need for out-of-market uplift payments is a symptom that pricing for reserves and energy is incorrect."
Uplift is not transparent, he added, which increases risk to suppliers and introduces a risk premium to their customers.
Last year PJM proposed changes to its energy market price formation that would allow large, inflexible generators such as coal, nuclear and large gas generators to set prices, likely raising energy prices across the RTO.
However, some regulators, are cautioning against such an approach. FERC Commissioner Cheryl LaFleur last week told a federal advisory group that regulators should “think very hard” before approving anything that changes the "fundamental" energy market price formation.
FERC has also called for a technical conference on the market's use of a year-round capacity market, which had caused trouble for seasonal resources like demand response.
- RTO Insider FERC Rethinking PJM Capacity Performance Rules
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