In a recent report prepared for PJM, The Brattle Group recommended changes to PJM's market monitoring processes that are intended to increase market transparency and stimulate competition. Brattle's recommendations will be considered by a PJM task force during its meeting today.

The report, entitled "Review of PJM's Market Power Mitigation Practices in Comparison to Other Organized Electricity Markets," compares PJM's market monitoring practices and policies with those used in other U.S. regional electricity markets and other countries. Based on this review, best practices were developed and recommendations were offered regarding process modifications.

"Given that wholesale power markets have been liberalized, but certainly not deregulated, we believe that it is important for PJM and other RTOs to review their market monitoring practices in the context of fostering both static and dynamic improvements in market performance," notes Dr. James Reitzes, a coauthor of the study. "The goal of our proposed improvements to PJM's current market power mitigation methods is to increase the accuracy and efficiency of the applied mitigation processes," he said.

The Brattle study's proposed recommendations were prioritized by PJM's Three Pivotal Supplier Task Force into the following short, medium, and longer term initiatives:

Short-Term Initiatives:

  • Increase the transparency of market power screens.
  • Consider adding a conduct-and-impact assessment as the second step to the existing structural screen. --
  • Consider alternatives to the Three Pivotal Supplier (TPS) test and analyze the potential for over-mitigation implied by the TPS test. --
  • If the TPS test is retained, consider modifications to address the identified concerns.

Medium-Term Initiatives:

  • Eliminate the exemption of "grandfathered" generating units from automatic mitigation.

Longer-Term Initiatives:

  • Assess whether analyzing impacts on individual transmission constraints results in economically sensible geographic markets.
  • Analyze reference levels used in applying mitigation and the treatment of frequently mitigated suppliers.