PJM to use pay-for-performance model for regulation service

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Valley Forge, Pa., October 2, 2012 — PJM Interconnection successfully implemented its performance-based regulation rules, a means to align compensation with actual performance for resources that provide regulation service.

Regulation service, a separate market from energy and capacity, corrects for short-term changes in electricity use that might affect the stability of the power system.

PJM uses a variety of resources to meet frequency regulation needs. These resources differ in the speed in which they can increase and decrease their production, and differ in the accuracy of their response to the dispatch signal.

Prior to this new structure, the regulation market did not distinguish between various levels of performance, and all resources were paid the same if they met minimum performance standards.

PJM also implemented a structure for shortage pricing yesterday. Shortage pricing establishes new rules for setting prices when PJM is operating at or close to a shortage of operating reserves.

Reserves are resources that are not supplying the system but are quickly available to provide energy if needed. PJM seeks to have enough energy reserves to handle the loss of the largest generating unit on the system at the time.

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