New PJM Plan Seeks To Deliver Greater Accuracy In Load Pricing; Impact On Customers Expected to be Negligible

April 27, 2015

On June 1, PJM will change the way it calculates the prices for zonally settled load. The construct is called Residual Metered Load Pricing and it aims to deliver more accuracy in load pricing.

Under the plan, non-nodal real-time load will switch from physical zone locational marginal pricing to the residual metered LMP. All non-nodal load in the zone will be priced at the same pricing point, while nodal load will continue to be priced at the applicable nodal pricing point.

Currently, load settled in PJM is priced in one of two ways – either at a designated node or aggregate or at the zone where the load is located. The zonal price is calculated as the average hourly prices at all the buses in the zone, including all the buses that are priced nodally. This methodology creates cross-subsidization between nodally and zonally settled load that the new plan seeks to correct.

In its training materials, PJM simplifies the change by making an analogy to the pricing of mixed nuts.

Let’s say that the mix includes six kinds of nuts, some more expensive and some less expensive. When combined in a container in equal parts, they are sold for $7.50 per pound. Now, let’s say the two most expensive kinds of nuts are pulled from the container. The price per pound doesn't change – it’s still $7.50 – even though the costlier nuts have been removed.

In this scenario, one could argue that the price per pound should drop to reflect the change in the mix. According to PJM, that’s what Residual Meter Load Pricing would basically do: Ensure that aggregate prices more accurately reflect the composition of non-nodal priced load in the zone.

Zones can’t opt out of the new plan; on June 1, non-nodal real-time load must switch to use of the Residual Metered Load aggregate LMP rather than the physical load LMP. However, the price impact on those affected customers is expected to be negligible.

PJM has prepared a number of documents and educational materials that explain these changes in greater detail. To view them, go to https://www.pjm.com/markets-and-operations/energy/residual-metered-load-pricing.aspx.

Essentially, any GDF SUEZ customers currently on a Fixed Price contract would not see any changes to their contract price resulting from the new methodology, while customers on an Index contract would begin to be settled at the new Residual Zone LMP (Locational Marginal Price) starting on June 1, 2015, since the old PJM LMP calculation methodology is going away.