On May 12, 2017, PJM Interconnection, L.L.C. (“PJM”) submitted to FERC revisions to the PJM Open Access Transmission Tariff (“OATT”), Attachment K-Appendix and the PJM Amended and Restated Operating Agreement, Schedule 1 to implement changes to the Operating Reserve demand curves (“ORDC”) that are embedded in PJM’s real-time market clearing engines.  According to PJM, the proposed changes to the ORDC are necessary to set clearing prices relative to the degree of severity of a reserve shortage.

PJM uses the ORDC to ensure that its shortage pricing levels are sufficient to satisfy reserve requirements and maintain system reliability.  When a PJM zone or subzone is experiencing a reserve shortage, the ORDC will trigger shortage pricing at a level sufficient to incentivize resources to produce energy to meet the reserve deficit, while maintaining certain clearance price caps referred to as reserve penalty factors.  The current ORDC is a single-step function defined by a reserve requirement and a reserve penalty factor.  When a reserve requirement cannot be met, the reserve shortage price is established utilizing the penalty factor for the applicable reserve requirement.

In the filing, PJM proposed to add a second step to the current ORDC that distinguishes between varying degrees of severity in reserve shortages.  Specifically, PJM’s proposed second step would create an extended reserve requirement during a cold weather alert, a hot weather alert, and escalating emergency conditions.  According to PJM, the addition of the second step to the ORDC with a lesser penalty factor relative to the first step will better reflect the lesser reliability concerns due to small reserve deficiencies, and incentivize market participants to respond earlier to reserve deficits.  PJM included a model in its filing demonstrating how these changes to the ORDC could reduce the clearing price for transient reserve shortages from $850/MWh to $300/MWh.

PJM’s filing is available here.