PJM Overreacting, Again

PJM Interconnection has again gone after a tack with a pile driver, in the words of reliability expert George Loehr.  In January 2014, PJM got caught short on capacity during a few cold snaps as coal piles froze and pipes burst at coal plants and natural gas providers broke contracts with gas power plants to sell on the higher profit heating markets.

Instead of simply dealing with capacity issues during winter peak, PJM’s bureaucrats decided to do a complete overhaul of their entire capacity system.  Remember that before the artificial “market” system created by deregulation, all capacity situations were handled by state PSCs which simply told the vertically integrated power companies within their jurisdictions how much reserve they needed and how much capacity investment they were allowed to pass on to their customers.  States controlled the whole shebang because power companies couldn’t operate outside state boundaries, except in rare cases.

Now that deregulation has ushered in the new era of energy speculation and artificial capacity markets, power companies use their positions in regional transmission organizations to jack up costs for their customers.  Bureaucracy, jargon and obfuscation are the tools that power companies to hide what is going on in their RTO cartels.

Whenever the PJM cartel wants to make a big change, it generates a smokescreen by inviting comments from “stakeholders.”  In the latest capacity market overhaul, 14 stakeholder lobbyist coalitions have formed to push various modifications to PJM’s proposal.

The coalitions give you a good picture of how the PJM cartel works.  RTO Insider has a good summary of the coalitions and their positions.  I won’t pick apart who stands where on all the issues.  You can do that for yourself.  I will say the positions are not surprising if you know anything about the backgrounds of the companies and organizations and agencies listed.

You should note that state public service commissions, which once controlled the capacity process, are now only one part of what is described as the “Consumer Coalition.” That gives you a good picture of how federal legislation in the 1980s and 1990s wrecked the old system.

The Consumer Coalition gets it right:

The group called the proposal “a far-reaching overhaul of the PJM capacity construct that is far too costly and not justified in its current form.”

“The Consumer Coalition believes the abrupt overhaul contemplated by the CP Updated Proposal, as currently constructed, will adversely affect consumers by sharply increasing the cost of capacity with questionable additional reliability benefits and further restricting demand-side participation. PJM staff has failed to show that such drastic changes are warranted or, if warranted, that these changes are the correct changes. Adding to the Consumer Coalition’s concerns is the extremely short timeframe that has greatly limited the opportunity for stakeholder review.”

The Transition Coalition echoes this point that the total overhaul of the PJM is too much, too fast, and for too high a price for customers:

The coalition said the proposal would impose $7.9 billion in additional costs to load for delivery years 2016/17 and 2017/18, providing a windfall to generators that cleared auctions for those years and already qualify as CP resources or have already taken steps to improve performance since the winter.

It said the proposal would violate FERC’s order on ISO-NE’s winter incentives, in which the commission said additional payments should not be made “to incent resources to make the same fuel procurement decisions they would have made, and been compensated for, absent the program.”

The coalition also said implementing all of the proposed changes in time for the 2015 Base Residual Auction was too rushed.

The group proposed spending $200 million to $600 million for winter-only improvements.

“PJM has not demonstrated that Capacity Performance would have a material impact on system operations during the Transition Delivery Years,” the group said. “PJM has not presented any evidence showing how paying more to resources that already have capacity obligations (many of which meet the Capacity Performance requirements) will translate into increased security in its control room.”

In addition to these objections, other coalitions point out that PJM’s plans would also eliminate a lot of renewable power, energy efficiency and demand management resources from PJM’s capacity markets.  Is this a coincidence?  Of course not.  The big nuke and coal generators that control PJM have finally found a crisis that they can use to their advantage to do what they have been trying to do for years.

Here is a graph from PJM’s own report on the capacity shortage during the first January 2014 cold spell:

screenshot-pjm com 2014-11-02 09-45-59 copyThis pattern was largely repeated on January 24 and January 28, when more cold weather hit the PJM region.

So the problem was with delivery of capacity by the coal and natural gas generators during a winter peak that PJM’s own report claims was a once in ten year occurrence.  Yet PJM wants to overhaul everything and give more bonuses to coal-fired generators, who already demonstrated they couldn’t make the grade.

And what about renewable power?  Here’s the answer to that one

Most directly, wind energy provided highly valuable electricity when PJM, the regional grid operator, needed it most. During the period of peak demand on Thursday evening [January 9], wind energy was providing PJM with 3,500 MW while electricity prices averaged more than $500 per MW hour (MWh), providing direct savings of $1.5 million to $2 million per hour.

While natural gas generation suffered a major collapse during the crisis, wind generated electricity provided a vital substitute for a lot of that missing capacity.

During these times of peak demand, wind energy was primarily displacing gas use at natural-gas fired power plants. Many areas in the eastern U.S. were at or near record natural gas prices due to weather-driven demand for natural gas for building heating as well as electricity generation. Because the natural gas price curve is also quite steep during times of peak demand, and because the market price applies to all transactions in the market, wind energy likely produced large savings for all natural gas users by driving down the price of natural gas. So even if you primarily use natural gas to heat your home (in addition to electricity to run your furnace fans) you can thank wind energy for helping to keep your heating bill low.

It is clear from the actual events of January 2014 that if power companies in PJM had been investing in the last five years in offshore wind power, instead of frantically chasing lower gas prices with new gas-fired generation, most of PJM’s capacity problems could have been avoided.

Instead providing real solutions for the real problems, the PJM cartel wants to pour more of our money into rigging PJM’s PIG rules to favor big generators that control the cartel.

2 thoughts on “PJM Overreacting, Again

  1. Just so you know, the Commissions got their OWN time to argue this issue with the PJM Board of Managers – 30 minutes, much more than any other coalition. And their comments were public and critical.

    Jacqueline Lake Roberts
    Consumer Advocate
    Public Service Commission of West Virginia
    Consumer Advocate Division
    723 Kanawha Blvd. East, Suite 700
    Charleston, WV 25301
    304-558-0526 (phone)
    304-558-3610 (fax)

    • Thanks for the information. I assume you are referring to an oral presentation to the Board of Managers. Is there a link available to a written version of the state PSCs’ oral comments? Did they present as a specific group of states, or did the do it through OPSI?

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