PJM CEO Andy Ott talks reserve market reform and winter reliability

In November, Ott appeared on the EPS podcast to talk through the details of a capacity market reform plan filed at FERC. “The game has changed” between the market operator and its state members, he said.

Market participants are still waiting on FERC to rule on those controversial reforms, but the PJM staff is already preparing its next move. At the end of the month, the grid operator will file a proposal with the federal agency to reform reserve pricing in its energy market.

“We have the 30 minute reserve, the 10 minute reserve, these high quality reserve products. We depend on them, we schedule them, and the price essentially, even during the heavy winter load, is close to zero,” Ott told The Electric Power Station. “As soon as we’re 2 MW or 3 MW over the narrow view of what we need, the price drops to zero because we don’t have a proper reserve market.”

To address that, PJM’s reserve pricing proposal will institute a sloped demand curve that will allow prices to respond earlier as the system utilizes generation reserves.

“We essentially run these generators every day for reliability … The question is what should they be paid? Should they be paid out of the market or in the market?” Ott said.

“We need to price the synchronized reserve, the 30 minute reserve, consistently in both the real time and day-ahead markets,” he said. “We need a sloped operating reserve demand curve so we don’t see that price drop-off, so those are the essential elements of the proposal.”

Recorded this month at the CERAWeek conference in Houston, Ott also addressed PJM’s recent winter reliability report, which he said showed “a continuous improvement … in generation performance.

“The newer generators coming online have significantly lower forced outage rates. What we’re seeing is the stuff that’s on a path to retirement has higher forced outage rates.” Ott said. “As they go offline and retire, the whole fleet is performing at a reduced forced outage rate.”