Possible changes for PJM could mean better price offerings for gas generators

PJM might be rethinking its system for collecting prices from gas-fired electricity generators. These organizations may soon have the ability to submit and update multiple prices for their product throughout the market day, as opposed to putting forth a solitary rate before the day begins.

According to RTO Insider, PJM is the only regional transmission organization in the country still operating with a daily price reporting methodology. In order to function through PJM - which feeds energy to the eastern portion of the U.S. grid - a gas-fired energy generator can only submit a single gas price daily for the day in question and for the following day's product. Moreover, they have very limited ability to alter what is submitted.

Working with the ups and the downs
In an age where 24 hours can consist of substantial market fluctuations, many other RTOs have switched to a new price reporting system. Instead of day-to-day, generators can adjust price information hourly, thereby trimming off or tacking on dollars and cents to better reflect market flux.

Doing so also protects these generators from risk. After all, a reasonable price at 5 a.m. might not be so attractive to buyers come 2 p.m. Alternately, low prices early on could mean generators are caught giving away power for pennies on the dollar when they could be charging more.

Gas prices can change at the drop of a hat. Generators just want to be able to reap the benefits.

Leading by example
Last December, ISO-New England - the second-to-last RTO to switch over to hourly price setting in the U.S. - stated in a press release that their old way of doing things hurt generators in the short-term by limiting them to one price. This essentially turned the energy market into a gamble they'd almost always lose. Furthermore, small losses over long periods of time stifled investment in gas infrastructure, which some parts of the U.S. lack greatly.

"Energy Market Offer Flexibility" - as ISO calls it - can also curb strain on the power grid. A 2014 assessment conducted by the U.S. Energy Information Administration contends more than a quarter of the nation's electricity generation comes from natural gas alone, with coal its only front runner at nearly 40 percent. But with coal plants retiring at a steady pace, natural gas will need to make up the difference.

This content is property of ESCO Advisors and all reproductions must reference and link back to the ESCO Advisors website.