By Rory D. Sweeney

CHICAGO — PJM CEO Andy Ott opened his remarks at last week’s annual meeting of the Organization of PJM States Inc. (OPSI) with a sports metaphor to describe the wide array of discussions that were to follow.

“This is a big playing field,” he said.

While there are many teams trying to achieve many goals on that field, Ott expressed willingness during the two-day meeting to consider rule changes that could redefine how they interact.

He also said there are “many ways to skin the cat” in addition to the capacity market to ensure long-term resource availability. PJM and its stakeholders have been working on a market overhaul for the past two years and smaller reforms for many years prior to that.

PJM staff have proposed adding a second phase to the annual Base Residual Auction to mitigate the impacts of subsidies on resources along with a “resource-specific carve-out” that would allow states to remove from the auction qualifying resources and procurement obligations for a corresponding amount of load. Ott’s comments suggested a willingness to reconsider American Municipal Power’s desire to emphasize bilateral contracting over procurement in the BRA. In August 2016, AMP led a coalition with other municipal utilities and cooperatives calling for a “holistic assessment” of the Reliability Pricing Model. (See Co-ops, Munis Call for Reset of PJM Capacity Model.)

A capacity market is “the most efficient way,” Ott said, but he added “frankly, if we need to evolve that … that’s doable.”

State Objectives

Ott’s openness to change was a recognition of state regulators’ frustration with the RTO. In the meeting’s first panel discussion, several regulators reiterated their intent to continue pursuing generation subsidies and other preferential policies despite opposition from pure-market advocates.

“I think I can say without question that our citizens do benefit greatly from PJM and the wholesale markets,” Maryland Public Service Commissioner Michael Richard said. “However, if we can’t find ways to adequately and fairly accommodate state policies, I’m concerned that [FERC] Commissioner [Cheryl] LaFleur may be right, and states will feel the necessity to effectively reregulate in defense of these state policies. We hope that that’s not the case and the direction that we go in.”

LaFleur expressed her concern in June, when she dissented in FERC’s 3-2 ruling requiring PJM to revamp its minimum offer price rule (MOPR) to address capacity price suppression from rising state subsidies for renewable and nuclear power. The commission initiated a “paper hearing” on the issue (EL18-178). (See FERC Orders PJM Capacity Market Revamp.)

Joe Fiordaliso, president of the New Jersey Board of Public Utilities, said his state is on a “clean-energy crusade” and working toward the largest statewide offshore wind solicitation in the country. “We must never forget the economic impact of clean energy,” he said.

Illinois Commerce Commissioner John Rosales forcefully defended his state’s zero-emission credit subsidy for several in-state nuclear plants, arguing that Illinoisans deserve capacity credit for the program because they pay for it.

“That has to be recognized, and when it’s not, I get a little angry. … That has to be accommodated by PJM,” he said.

The rhetoric got even more heated after Direct Energy’s Marji Philips criticized the vying state policies as “kids in a sandbox” kicking sand at each other.

“Are you ready to go back and tell your consumers you’re pulling out of PJM? … Because that’s what you’re doing. You’re destroying the … integrity of the market if you all do the things you want to do,” she said.

“We will kick sand in your face. I’m just being honest. We’re paying for it,” Rosales responded.

He said he felt the capacity revamp discussions at PJM were a “punitive” response to Illinois’ ZEC rule and designed so that Illinois is “going to take the hit” as an example for other states to deter them from “doing the same thing.”

He noted the state is “in a better position to negotiate in good faith” following the decision in September of the 7th U.S. Circuit Court of Appeals to uphold Illinois’ law. (See 7th Circuit Upholds Ill. ZEC Program.)

The other regulators on the panel attempted to strike a conciliatory tone.

“I’m not trying to destroy anything. I’m trying to build a better foundation,” Fiordaliso said.

“I don’t think it’s mutually exclusive,” said Richard, who became OPSI’s president for the next year. “We’re willing to pay for the [renewable energy credits]. We’re willing to pay additionally. There’s a strong interest [among Maryland residents] in helping the environment.”

Ohio Public Utilities Commissioner Beth Trombold touted the state’s utilization of its natural gas supplies and made it clear that the state was no longer seeking to protect its coal-fired generation. FERC ruled in April 2016 that it would scrutinize power purchase agreements between affiliates like ones requested in Ohio by American Electric Power and FirstEnergy under the Edgar affiliate abuse test. The companies subsequently scaled back their PPA requests to the commission.

“We’ve faced that ourselves, and we’ve moved in a different direction. We’re a big fan of competitive markets and we want to see that preserved,” Trombold said, noting her commission’s recent PowerForward initiative to give utilities “a sense of the framework we’re interested in seeing” them follow in making filings.

DR Doldrums

Pennsylvania Public Utility Commission Vice Chair Andrew Place noted that the Keystone State ranks 23rd in renewable generation.

“That speaks to my realization that we are not where we should be,” he said. Place also criticized PJM’s rules on how demand response is handled.

“It is vital that these programs be incorporated into PJM’s forecasts,” he said. “More recently, PJM’s accommodation of cost-effective, summer-DR, supply-side markets has come up, in my consideration, short of the mark.”

His comments were in reference to PJM stakeholders’ approval at the October Markets and Reliability Committee meeting to “better value” summer-only DR by allowing the resources’ value to impact the load forecast as an alternative to participating as a supply-side resource in capacity auctions. To avoid double counting, resources that take the peak-shaving alternative wouldn’t be eligible to participate as either a DR resource or price-responsive demand in the same year. (See “Summer-only Demand Response,” PJM MRC/MC Briefs: Oct. 25, 2018.)

Environmental or Economic Interests?

Direct Energy’s Philips asked regulators whether their states’ policies were driven solely by environmental concerns or were also influenced by economic interests.

“Would a carbon price make you happy, or would you still want that [renewable] development in your state?” she asked.

Fiordaliso noted New Jersey is re-entering the Regional Greenhouse Gas Initiative (RGGI) and that “carbon pricing is certainly a part of the portfolio.” Maryland is also a RGGI member, Richard said, “and yes, Maryland would like to develop as many of those resources in state as possible.”

“Keeping these policies with policymakers and with the states; I think that’s the appropriate place,” he added. “I get a little nervous with a discussion that somehow PJM might adopt and create its own carbon-pricing regime.”

Trombold deflected the question, saying Ohio’s legislature sets its energy policies. Michigan Public Service Commissioner Rachael Eubanks noted that carbon is not mentioned at all in her state’s legislation on advancing “renewable energy technologies and the corresponding benefits that come out of that, including economic benefits.”

“I would think that it would have to be a national discussion,” Rosales said. It would be “unfair” to have a carbon price implemented inconsistently across the RTOs, he said.

“The overarching goal is the environment,” said Place, who said earlier it’s his commission’s “social obligation” to either join RGGI or “see that [carbon pricing] comes about.” However, he also noted a Pennsylvania law passed in 2017 that supported in-state solar production.

“I’m not always a fan of being parochial, but at the same time, Pennsylvania was leaving a lot of tax benefit [and] federal financial support on the table, and other states were gobbling that pie. Probably sound policy, but one that in some ways does strike me as discordant,” he said.

Other Perspectives

In a subsequent panel, PJM stakeholders hashed out concerns about the current state of the capacity market revamp. The Sierra Club’s Casey Roberts said the RTO’s proposal is among those that “on their face” appear to accommodate state preferences but actually do not.

“It increases the costs to states to pursue their policies by making them pay twice,” she said, calling payments made to units whose bids are pushed out of clearing by state-supported resources “the consolation prize” and “icing on the already fattening cake that consumers probably don’t want to consume.”

Craig Glazer, PJM’s vice president of federal government policy, expressed concern over the impact of state policies on an interconnected grid.

“What if this had been a subsidy for coal from West Virginia? Would Exelon and Sierra Club be arguing states’ rights?” he asked. “If you start having one state’s policy choice … affecting every other state, your legislature may not have agreed to that policy, but you are in fact subsidizing that policy. … It’s really at the end of the day an interstate commerce challenge.”

Andrew Novotny, Calpine’s executive vice president of commercial operations, said PJM’s proposal is intended to ensure that states pay in total what they already pay today.

“That’s why we support it. States won’t be paying twice under that. They’ll just be basically paying what they are today with the sliver of side payments [for subsidies]. And if it’s not working out like that in the math, I’m sure the generator community is more than open to some sort of compromise to make sure it does work like that.”

Other Hot Topics

The meeting also covered several other hot topics, including how the evolving definition of “grid resilience” might impact wholesale markets, whether PJM’s energy market needs to be revamped and the state of the RTO’s governance.

Panelists debated how people will respond in emergencies to either share resources or horde them. Daniel Rogier, AEP’s vice president of transmission asset strategy and policy, explained his company’s “no regrets” focus for making system upgrades that have little or no downside, such as replacing wooden poles with steel ones.

Virginia State Corporation Commissioner Mark Christie noted the difficulty with making state desires known at FERC, which has switched chairs four times in less than two years.

“You express it to the chair, and the next week there’s another chair,” he said.

On energy market changes, PJM’s Stu Bresler assured attendees the RTO is “not trying to go energy-only” and therefore doesn’t need spot prices “as high as ERCOT does.” His fellow panelists urged that any changes need to come with additional transparency and granularity that allow the market mechanisms to work without administrative involvement.

Panelists on PJM governance agreed that any changes on committee structure or sector membership and vote weighting will be difficult to implement.

But Gabel Associates’ Mike Borgatti, who chairs PJM’s Members Committee, acknowledged states’ concerns about their ability to get involved.

“It’s unequivocal that what we’re doing now is not capturing enough of your input,” he said. “Figuring out how to balance that dichotomy is a two-way street.”