PJM Panel Reviews 2019, a Year of Change

Credit Risk Policy Enhancement, New Capacity Market Rules, Evolution of Supply Mix Among Topics Explored

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A year of tremendous change for PJM and stakeholders in operations, planning, markets and risk management was the focus of a five-member “Year in Review” panel which convened Monday during the annual meeting of members, held via Webex.

In addition to hiring a new CEO in 2019, PJM welcomed its first Chief Risk Officer, Nigeria Bloczynski, who spoke Monday about ushering new credit policy rules through the stakeholder process as well as enhancing the current PJM Enterprise Risk Management Framework.

Bloczynski recounted her first year in the new role, which included the establishment of an executive-level committee that reaches across PJM to identify market, operational, information technology, credit, cyber and other risks.

The stakeholder process also reflected this spirit of collaboration in 2019, the panelists said.

Stu Bresler, Senior Vice President – Market Services, detailed what he called “three shining examples of the stakeholder process” that involved hard compromises and deep negotiation:

  • The consensus on demand response load-management testing rules
  • The application of critical fuel-cost policies that determine how market sellers determine their cost-based offers
  • A streamlined opportunity-cost calculator from what was previously a contentious process

Member Companies Worked ‘Extremely Well’

Mike Bryson, Senior Vice President – Operations, underscored how “extremely well” member companies worked together last year to maintain grid reliability, continuing into the present landscape dominated by the coronavirus pandemic.

Bryson said he is particularly proud of how PJM staff swiftly repurposed a testing simulator into a third control room in a matter of days to accommodate any risk to system operations posed by the pandemic.

A team of grid operators were screened and then sequestered to work in the new control room to ensure continuity – just one of a number of precautions undertaken by PJM.

Bryson also highlighted new tools that enable more accurate modeling of potential stability issues in the system as well as load forecasting.

Planning’s Busy Year

Consensus-building among PJM and stakeholders also marked a number of initiatives in planning – from a new cost-containment feature for competitive project proposals to transparency in end-of-life facility replacement, said Ken Seiler, Vice President – Planning.

PJM and stakeholders invested significant work around the area of supplemental projects, he said.

“There’s a lot of money being spent on the transmission system,” Seiler said. In 2019, projects addressing baseline reliability needs totaled $1.5 billion, while supplemental projects ran to $3.4 billion.

That’s not surprising, he said, given that two-thirds of the infrastructure on the system is over 40 years old, and a quarter is older than 60 years old.

As the grid ages, the generation it serves – and how electricity is being consumed – is rapidly changing, Seiler said.

PJM continues to see generation retirements across all fuel types, but primarily nuclear and coal. For example, nearly 5,000 MW of coal, and more than 800 MW of nuclear, retired in 2019 for a total of 6,200 MW of total generation retirements.

For the past several years, PJM has begun seeing a shift from combined-cycle natural gas generation to larger wind and solar projects.

Meanwhile, consumer behavior is changing as well, Seiler said.

“There are a lot of exciting things happening on the grid that will change what it will look like in the future, including offshore wind and other high-technology areas,” he said.

New Rules for Capacity Auction

Closer on the horizon is the next PJM capacity auction, and panelists weighed in on the Federal Energy Regulatory Commission’s controversial decision to expand the Minimum Offer Price Rule (MOPR).

PJM went to great lengths to solicit stakeholder feedback for its first compliance filing, and is doing the same for the second compliance filing due June 1, after FERC recently upheld the bulk of its ruling but provided some clarifications.

Bresler noted the first of such stakeholder meetings will be held Wednesday, May 6.

Bresler joined Joseph Bowring from Monitoring Analytics, the independent market monitor, in saying they believe the short-term impact of the MOPR order will be relatively minor.

That’s because, they said, PJM hasn’t held a forward-looking capacity auction for two years, and the FERC ruling exempts existing renewable resources – and those that have signed an interconnection agreement. In addition, they said, many renewables are expected to become increasingly competitive.

But, Bresler said, “From the standpoint of the forward-looking nature of capacity commitments and looking to gain some sort of stability, we really need to get on the road of executing these auctions again.”

Optimistically, FERC could rule on the compliance filings by mid-summer, Bresler said. With a proposed timeline of about six months to prepare, that puts PJM on track to an auction sometime “very early in 2021.”

Subsequent auctions would be held about six months apart until they are back on schedule.

Bowring: Markets Work

Bowring also said it was essential to get the auctions going again. It’s also essential, he said, to continue to work with states to look at how policy initiatives such as carbon pricing or the pursuit of clean energy is affecting markets.

A durable market design can be flexible enough to adjust to these preferences, he said, further cautioning states that their most effective route is to stay in the market as opposed to pulling out of it.

Bowring echoed the results of his State of the PJM Market report: “In 2019, the PJM markets worked,” he said.

Energy prices were the lowest in PJM history, and congestion and uplift were down, he said.

Competitive markets have brought tremendous benefits to consumers, Bowring said, adding, “Now is not the time to give up on markets.”