Post: Regulators urge PJM to prevent extreme prices in emergencies

Regulators urge PJM to prevent extreme prices in emergencies

PJM Interconnection should adopt a “circuit breaker” to prevent emergency grid conditions from causing energy prices to rise steeply, according to the Organization of PJM States Inc (OPSI).

OPSI said in a letter submitted to the grid operator’s board on November 11 that  historic revenues from energy markets are roughly in the range of $15-$30B/y. But that, under current market rules, energy prices could rise to roughly $3,700/MWh based on existing reserve penalty factors, or as high as $5,700/MWh under stacking provisions based on existing transmission penalty factors, if left unchecked. These prices would result in daily energy costs of roughly $11B and $17B, respectively, under peak winter conditions. OPSI also raised concerns over the impact that unpredictable events such as extreme and variable-weather events or cyberattacks could have on the bulk power system and the economics of the region.

To avoid potential damage to its markets prior to the full onset of cold weather this winter, OPSI urged PJM to adopt a “circuit breaker” to prevent emergency grid conditions from causing energy prices to rise steeply. It said this should ensure:

• PJM has the necessary flexibility and tools to deal with the unknown, unique, and force majeure events that could necessitate Circuit Breaker actions. It noted that PJM may need to rely on event-based and price-based triggers in combination to achieve a flexible response to an event, but that PJM should have discretion to both trigger and terminate necessary actions to protect the financial integrity and safety of its grid and the economic stability of its service territory.
• Actions at PJM’s disposal should include options for pricing caps and reductions in penalty factors, or both, according to the severity and duration of the event or events.
• Where prices continue to serve the purposes for which they were designed, PJM should abide by market principles since high prices alone do not indicate a breakdown in market function.

The PJM Markets & Reliability Committee will consider two circuit breaker proposals for possible endorsement.