Comments of the R Street Institute on PJM’s Reserves Pricing Proposal
The Commission should welcome PJM’s proposal for a market-based solution that both rationalizes pricing of energy and capacity products and sets the stage for a marketplace infused with a growing quantity of energy produced by weather-dependent renewables. R Street supports the adoption of more robust operating reserve demand curves (“ORDC”) to substitute for the deficiencies of PJM’s existing approach to procuring capacity in near-real-time. The Commission should recognize that an approach that uses a market-like mechanism—even one like ORDC, whose demand is constructed through administrative guesswork—is superior to the current approach of commandeering the capacity necessary to ensure system reliability.
While this proposed change in market design is laudable, it does come with a problem: It is not clear why consumers, having paid for capacity once through the forward capacity market, should be expected to pay again for a type of operational capacity in near-real-time. PJM argues only vaguely in its Application about the relationship between these two markets for capacity. Without modifications to the forward capacity market, the changes that PJM proposes in this docket may be, or may become, unreasonable. If the Commission approves the modifications PJM now proposes, the Commission should make clear that a market design shaped around an increasingly robust ORDC is an off-ramp from, and an eventual substitute for, the forward capacity market, which is an inferior vehicle to pay resources for the capacity that customers actually require.