PJM Presents Possible FERC Comments to Stakeholders at Special MRC

How PJM will answer the Department of Energy’s proposal to “ensure that certain reliability and resiliency attributes of electric generation resources are fully valued” was at the heart of a special Markets & Reliability Committee conference call on Oct. 19.

At the meeting, Stu Bresler, senior vice president – Operations and Markets, presented to stakeholders a high-level outline of what PJM is planning to file in its comments to the Federal Energy Regulatory Commission. Stakeholders, in turn, asked PJM to elaborate on those intended comments and the questions that the FERC distributed in advance of the comment filing deadline on Oct. 23.

The DOE said it is concerned with reliability and fuel supply in its plan, which proposes to require all ISOs/RTOs with both energy and capacity markets to change their tariffs to provide generating units that have at least 90 days of on-site fuel supply with full cost recovery plus a return on equity, if they are not already receiving such recovery through retail tariffs.

PJM does agree with the DOE’s overarching goals of reliability and resilience, said Bresler, who pointed out that PJM has been discussing resilience with stakeholders for some time, dating back to the Grid 20/20 presentation in 2016.

For PJM, it’s a question of approach. How to value the maintenance of a 90-day fuel supply isn’t the right question, said Bresler.

The DOE cited instances such the Polar Vortex as cause for action – but, natural gas fuel supply alone was not the cause of the problems during the Polar Vortex.

“We don’t believe the DOE identification of what the problem is, is correct,” said Bresler. He pointed out that while PJM did experience over 40,000 megawatts of generator outages during the Polar Vortex, 75 percent of the outages were mechanical or operational, not natural gas fuel supply restrictions. “Just maintaining a 90-day fuel supply would not have alleviated that.”

Noting that the DOE also mentioned natural disasters, Bresler said, “The point we will make there is, you take an event like [Superstorm] Sandy. That primarily affected the delivery system. In Houston (during Hurricane Harvey), the supply of coal got extremely wet, while natural gas went intact. It’s not an issue of long-term supplies of fuel.”

One of the keys to that resilience and reliability is the strength of PJM’s markets. The PJM competitive markets have been extremely successful in efficiently maintaining reliability for 20 years. PJM has resources sufficient to meet peak demand and in locations where they are needed to maintain transmission reliability.

However, said Bresler, not all resources are being appropriately compensated for the reliability value they are providing. PJM believes continuing to leverage the competitive markets represents a superior solution to that proposed by the DOE.

PJM proposes to address the need for energy market pricing in a detailed paper, which it will release in November. However, PJM will explain the concepts of its energy price formation initiative, including potential enhancements to shortage pricing, in its comments to the FERC.

It will not, however, present a detailed proposal to the FERC at this time. Bresler said PJM placed a lot of importance on stakeholder vetting and wants to take the time it needs to be as complete and detailed as possible in its energy price formation paper.

“In some instances, not all resources are being valued appropriately,” said Bresler. “This is an issue we brought forth to stakeholders five or six months ago… how energy prices are formed in PJM market.

“Markets can provide the discipline necessary to ensure the goals are achieved efficiently, what is needed and not needed not just for entry signals but for exit signals.”

Regional differences are another important aspect of the PJM comments, said Bresler. PJM will recommend that the FERC take a procedural path to allow for regional differences between solutions to address the DOE’s stated objectives of reliability and resilience.

As PJM’s fuel supply mix has evolved, it has highlighted some known but previously-masked flaws in PJM’s energy pricing approach, said Bresler. He pointed out that other RTO/ISOs – New York, New England, MISO – have extended locational marginal pricing, which PJM believes it should consider. PJM and stakeholders were in agreement that a one-size-fits-all approach would not work in the many diverse markets across the country.

PJM also pointed out that its approach to resilience is broader than markets alone, covering Planning and Operations to include transmission solutions as well.

“The first question the FERC asked was about defining resilience,” said Bresler. “We have the chance to put our definition of resilience in front of the FERC,” said Bresler. “There are opportunities there, and the stakeholder input is valuable. We’ve already been presenting [to stakeholders] and discussing how it impacts all aspects of PJM.”

PJM’s comments will not ask the FERC for a compliance directive to file energy price formation changes immediately, but it will ask for FERC direction to address potential energy price formation changes with PJM’s stakeholders along with a specific date by which PJM needs to report back to the FERC on this topic.

“We would like them to get back to us,” said Bresler, “about what issues it specifically wants to resolve. A mechanism allowing for back-and-forth is what we’re looking for.

“If we leave it too open-ended, we risk it taking on a life of its own.”

PJM is also working with the ISO/RTO Council on joint comments.