PJM members flag power price formation, transmission planning concerns to board

PJM Interconnection's management board recently met with representatives of each of the five power industry sectors who raised concerns regarding energy market rule changes increasing power prices, resource adequacy, transmission regulation, and other issues.

PJM summarized the topics that its board discussed with the main market participant stakeholder groups in a note sent late Nov. 19.

Specifically, the board met with representatives of the following segments:

• Electric Distributors Sector
• End-Use Customers Sector
• Generation Owners Sector
• Other Suppliers Sector
• Transmission Owners Sector

Industry focus areas

The power generation owner segment raised the future of PJM's capacity markets, with the participants saying they are concerned that the role of PJM's markets in ensuring resource adequacy is being subordinated to the accommodation of state resource preferences without adequate attention to system reliability.

The capacity market has undergone significant change in recent years, with the minimum-offer price rule first being expanded to include nearly all resources receiving state subsidies, which made them less likely to clear in capacity market auctions but then having the MOPR relaxed such that state-subsidized resources have more leeway to clear the auctions.

"The participants explained how the loss of investor confidence is already impacting the existing thermal resources, and accordingly will lead to resource adequacy and reliability concerns," according to PJM.

The generation owners provided perspectives on the need for continued capacity market attention to ensure that thermal resources are properly qualified and valued, as well as a need for attention to the Quadrennial Review process to ensure that it properly reflects changing market dynamics, PJM said.

The participants also encouraged PJM to continue examining the possibility of including the cost of carbon dioxide emissions in its dispatch as superior to a clean capacity product.

The end-use customer sector raised the PJM energy markets, expressing concerns regarding the recent changes to power price formation including fast-start pricing reforms and operating reserve demand curve market reforms, noting that the changes were not advanced with broad member support through Federal Power Act Section 206 proceedings.

In September, fast start pricing was applied to 6.5% of marginal resources in the real-time market and increased overall real-time energy market prices by 4%, according to PJM's Independent Market Monitor.

The extended ORDC is will affect prices in most hours when it goes into effect Oct. 1, 2022, allowing PJM energy market prices to exceed $14,000/MWh in emergency conditions.

The end-use customers encouraged PJM to examine the pricing impact of the recent energy market reforms and to ensure that a circuit breaker is implemented as part of the ORDC changes.

The transmission owners discussed the importance of PJM's leadership in the reforming of the grid interconnection queue process, and PJM's critical independent role in planning, including the importance of scenario-based planning, according to the letter.

Regarding PJM's plans to comply with the Federal Energy Regulatory Commission's Order 2222 aimed at increasing participation of distributed energy resource aggregations in PJM markets, the transmission owners raised a perception that PJM is making an "incursion into distribution system and retail customer matters," according to PJM's summary of the meeting.

The electric distributor sector said they were concerned about the changing fuel supply in PJM and the increasing reliance on natural gas as a fuel source, noting that ensuring adequate gas supply was becoming a necessary component of reliability.

The participants urged PJM to focus on improvements regarding coordination/communication with pipelines and suppliers; alignment of the gas and electric days; access/nominations on holidays and weekends; firm transportation including the use of operational flow orders; and priorities of service, according to PJM.

Representatives of the "other suppliers' sector," reaffirmed the importance of the existing Auction Revenue Rights/Financial Transmission Rights construct as serving the "dual purposes of returning congestion costs to load and enabling the efficient hedging of congestion costs," PJM said.

They also indicated support for increases in FTR auctions and biddable points.