Energy Policy and PJM: Partnering with States for the Grid’s Future

By Asim Z. Haque, Vice President – State and Member Services

1985

Keeping the power flowing at the lowest possible prices while planning for the future of the electrical grid for 13 states and the District of Columbia is the complex challenge that PJM Interconnection, operator of the nation’s largest electric grid, takes on every day.

It is a huge endeavor, and we can’t do it alone. We have more than 1,000 members, including generation and transmission owners, consumer advocates and others who collaborate with us on this critical work.

And the challenge is constantly changing. Technology has reshaped the energy industry in ways that couldn’t have been foreseen in 1927, when three utilities in two states formed the world’s first power pool – PJM’s precursor – to harness the synergies of scale.

Historically, states used similar resources to generate electricity and had common interests. As the resource mix diversifies, however, those interests also diversify and sometimes diverge.

The boom in shale gas-fired generators, rise of wind farms, proliferation of home and commercial solar installations, and development of new energy storage technologies have created a new contingent of generators/technologies, and the electricity they produce knows no state boundaries. But the states that are home to those generators certainly care about what happens within their borders, and they want some degree of control in the makeup of that fleet.

States’ world views have changed, too. At the same time elected officials want to protect the economic benefits that traditional generators have provided locally, many are now embracing policies that curb emissions – particularly greenhouse gases.

States Shaping Energy Policy

PJM’s markets have proved to be nimble over the past two decades in accommodating this changing industry landscape.

States are increasingly active in choosing their own energy policy and shaping their own energy future. They have their own priorities, and they want a say in their energy mix. Some, like Virginia, West Virginia and Indiana, plan for and regulate the generation that is built in their state. Others try to encourage the building of certain resources – such as renewables – or to keep coal or nuclear plants from closing.

When Federal Priorities Meet State Policies

While states have their own policies, the transmission and sale of wholesale power is governed by the Federal Energy Regulatory Commission (FERC).

FERC regulates PJM, and as such, we have been witness to – and sometimes the target of – criticism regarding rules that states see as limiting their ability to shape their own generation fleet.

In recent years, federal priorities and state policies have not always been in alignment. This is particularly acute in the debate over the future of PJM’s capacity market.

FERC Expands Market Mechanism

When subsidized resources offer in to wholesale markets at prices that don’t reflect their actual costs, they can artificially depress auction clearing prices. In a Dec. 19 ruling, FERC ordered changes aimed at countering the impacts of these subsidies on the market.

FERC, in its order, greatly expanded an existing market mechanism called the Minimum Offer Price Rule to include virtually all new resources and some existing ones, with limited exemptions. In doing so, FERC declined to adopt a number of exceptions that PJM had proposed.

States argued that FERC went too far, and PJM agreed.

A Balanced Path Forward

There has long been a balance between state and federal interests, and FERC has a history of recognizing – and helping to maintain – that relationship.

PJM believes there are ways to integrate state policies without compromising the integrity of a market that saves consumers billions of dollars a year. Furthermore, there is so much value that PJM can continue to offer to states via our planning and operations functions.

As to markets, our support of state initiatives is reflected in our request for a rehearing and clarification on FERC’s order.

PJM is asking the Commission to provide greater flexibility for PJM to accommodate state energy policies and integrated utility decisions. Our filing also requests that FERC expressly encourage PJM and its stakeholders to work on long-term proposals that preserve the balance between federal and state interests.

PJM will maintain a partnership with the states. They have an important voice, not just because they represent the 65 million constituents served by PJM and its members, but because they’re leading the way in energy policy.

PJM has a vast body of knowledge in planning, markets and operations to offer our stakeholders. Our message to states is: Let us help you advance your energy policy initiatives.