“PJM Expects To Have Adequate Resources To Meet Forecasted Peak Summer Conditions.” — PJM

Here is a link to a PJM Interconnection press release dated May 5, 2010.

The release starts with the following statements:

Consumers are being counted on to reduce this summer’s peak demand for electricity (the highest amount of electricity needed at one time) by six percent in the 13-state plus D.C. PJM Interconnection region.

PJM forecasts a peak demand of 135,750 megawatts (MW) of electricity this summer. (One megawatt is enough electricity to serve 800 to 1,000 homes.) PJM expects to have adequate resources to meet forecasted peak summer conditions.

The release goes on to say:

PJM will have 162,903 MW of generation available. Consumers’ voluntary reductions in usage (known as demand response) are expected to reduce the peak electricity use by 8,525 MW – equivalent to 10 large power plants. Demand response in PJM has increased fivefold since 2006 when 1,677 MW of demand response were available.

So, what does all this mean?  It means that peak load needs in eastern PJM, which PJM always claimed required shifting large amounts of power from western power generators, are being steadily reduced by the much cheaper and faster alternative of reducing consumer demand during peak periods.  In fact, this “demand side management,” or DSM, has been so effective that it “has increased fivefold since 2006.”

In between these paragraphs, PJM includes the following statement:

“PJM and our members are ready to handle the expected summer conditions,” said Michael J. Kormos, PJM senior vice president – Operations. “However, until transmission additions can relieve congestion, we expect we will continue to reschedule generation to accommodate peak load conditions.”

Mr. Kormos, refers to “congestion” that will be “relieved” by “transmission additions” (PATH).

Let’s examine that statement more closely.  Mr. Kormos refers to something that PJM calls “congestion costs” that are incurred when the cheapest power on their system cannot flow to distant high demand markets where more local power generators charge more money for their power because of the higher demand.  PJM calculates “congestion costs” as the difference between the price customers pay to local generators in the DC area or Phildadelphia or NJ at peak times, because all the power they need at that time can’t get to them from AEP’s and Allegheny’s coal fired plants in WV (the “reschedule generation” that Mr. Kormos refers to).

So this “congestion” has nothing to do with the real physical congestion of power lines, as AEP/Allegheny imply in their propaganda.   This is strictly economic congestion.  The question we need to ask, then, is, “Who pays the economic cost that consumers in high demand areas have to pay for their peak power?”

Independent power expert Hyde Merrill explained very clearly who pays congestion costs when he testified in East Virginia about the TrAIL line:

Rate-payers do not pay “congestion costs.” “The effect of PJM’s real-time pricing mechanism is to raise prices – dramatically – when congestion occurs. This is intended to send a price signal to encourage more generation and demand side savings in congested areas. However, to protect ratepayers from huge price increases due to congestion, PJM created a hedging mechanism. PJM captures a portion of the congestion related price increase, which it calls “Congestion Costs.” PJM then rebates these increased costs to the ratepayers through the FTR [Financial Transmission Rights] mechanism… These are bookkeeping procedures carried out within the market accounting and billing system…. When [PJM witnesses] refer to congestion costs of $1.2 billion in a single year, for example, they are referring to ratepayer rebates, not to costs paid by ratepayers.” (See Merrill testimony.)Testimony of Merrill from the TrAIL case before the Virginia State Corporation Commission can be found here: http://www.pecva.org/anx/index.cfm/1,341,0,44,html/SCC-Testimony.

Mr. Merrill states clearly that PJM’s “congestion costs” are hedged and then rebated to rate payers under the current system.  Hedging requires PJM and its members to incur some costs, but those costs are absorbed by PJM and its members, not by rate payers.

What would happen if “congestion costs” were to be “relieved” by “transmission additions?”  Under the FERC cost recovery system set up for these transmission additions like PATH, rate payers would pay for “relieving congestion costs.”

In short, building PATH transfers the payment of congestion costs from PJM and its power company members directly onto rate payers.

Rate payers, do you feel “relieved” yet?

As PJM has stated in its own press release, its congestion cost system is working just fine without any new “transmission additions” in operation.  The higher “congestion costs,” as Hyde Merrill points out, are designed to spur new generating plants in the high demand areas and to stimulate demand side management.  This is exactly what is happening.  By encouraging new power lines from western PJM, PJM will wreck the perfectly functioning system that it is touting in its recent press release.

PJM’s policy on congestion costs and new power lines seems to be based on the philosophy “if it ain’t broke, break it.”

Three more random but relevant observations:

1. Throughout its claims at state PSCs that PATH and TrAIL are needed, PJM has always argued that peak load was constantly rising and causing physical problems on existing equipment.  If peak load is now being stabilized and reduced by DSM, those projected “problems” disappear.
2. DSM means that power companies can shut off consumer and industrial users’ air conditioners and other electrical equipment for short periods of time during peak demand.  This means that consumers use less power and, ta da, their electric bills are reduced.  Which makes more sense?  Fixing PJM’s “problems” by raising everyone’s bills paying for power lines, or reducing electric bills for a lot of people by using DSM.  Looks like a no-brainer to me.
3. PJM has been claiming recently that decreasing peak load is only caused by the current economic crisis and will recover when the economy recovers.  That’s not what the May 5 PJM press release says.  It says clearly that DSM is making it possible to meet all their current peak load needs.  What if DSM increases “fivefold” in the next four years?  What if FERC gave its “incentives” to promote DSM instead of new power lines?  DSM “generated” the equivalent of 10 new power plants this year, right where they were needed most.  What if DSM were “generating” the equivalent of 50 power plants in five years, right in the eastern load zone where it is needed?