PJM Reliability Pricing Model - A Summary and Dynamic Analysis

The reliability pricing model (RPM) is the capacity construct proposed by PJM to implement forward procurement of generating capacity requirement recognizing its locational value. A variable resource requirement (demand curve) is used to determine the amount paid to capacity. Capacity market buyers, sellers and other parties developed a settlement agreement and filed it with US Federal Energy Regulatory Commission (FERC) in September 2006. Subject to FERC approval, RPM is scheduled to replace the current capacity market effective June 2007. This paper summarizes the key features of the RPM proposal, and the results of a dynamic comparison of the settlement curve with other possible curves.