Electricity Markets

PJM board hears from PUCs, CEOs on price formation issues

The PJM Interconnection Board of Managers recently heard from state utility regulators in the regional transmission organization’s footprint, as well as several top utility CEOs, on their views related to the ongoing PJM price formation debate and the RTO’s stakeholder process more broadly.

In one letter, the group of state utility regulators argued that PJM’s changes to the to the RTO’s energy and operating reserve markets that it has proposed to stakeholders will increase costs to ratepayers.

A second letter from a group of top executives with owners of generation within PJM said that the RTO has fallen short in being able to successfully navigate the current stakeholder process that was launched to tackle key energy price formation issues.

OPSI letter

In its Jan. 23 letter to the PJM Board, the Organization of PJM States Inc. (OPSI) said that it has been monitoring the efforts being led by PJM in its Energy Price Formation Senior Task Force, has reservations regarding the PJM Board’s direction in this matter as set forth in a December 5, 2018 letter, and requests reconsideration of the Board’s request to terminate the stakeholder process by Jan. 31, 2019 and direct a Federal Energy Regulatory Commission filing.

OPSI is an inter-governmental organization of utility regulatory agencies of 14 jurisdictions that are wholly or partly in the service area of PJM.

OPSI said that it finds value in the stakeholder process “in that it informs our commissions and generally provides the information needed to better understand PJM’s operations and how changes thereto may affect ratepayers and PJM market participants in our states. The process often results in compromises, but the final market rules should always be fully informed, and most importantly, result in just and reasonable rates.”

OPSI went on to say in its letter that it recognizes that from time to time, PJM will need to explore changes to improve its markets. “However, these changes must be demonstrably fair and necessary, and even then, OPSI supports applying the principles of transparency and gradualism in adopting such changes.”

The group of state utility regulators said that it cannot support duplication between energy/ancillary services markets and the capacity construct that would result in ratepayers paying twice for the same product or service, even in transition to a new market design. “And this includes all phases of transition.  Such an outcome is not just and reasonable.”

Moreover, OPSI said it cannot support insufficiently supported non-market and administratively determined market design elements that do not reflect value to ratepayers in terms of operating reserve quantity risks they may face.

“PJM must provide detailed analyses to support its proposals and be thoroughly transparent with its data and simulations to allow independent verification and validation and proper evaluation of proposed market changes,” the letter from OPSI said.

PJM’s currently proposed changes to the energy and operating reserve markets that have been presented within the stakeholder process will increase costs to ratepayers, OPSI asserted, adding that the RTO has not shown increases at these levels to be necessary or that they will be implemented in a manner that will maintain just and reasonable rates. 

“The drive by PJM to adopt these immediate and costly changes, without sufficient justification, does not provide an opportunity for states and stakeholders to engage in productive dialog to attain a thorough and meaningful understanding of proposed reforms and optimal solutions.”

OPSI therefore asked the PJM Board to extend its Jan. 31, 2019 deadline for termination of the stakeholder process and an immediate FERC filing. 

“Such accommodation by the PJM Board would allow for the appropriate analyses and discussion of these issues, which will greatly improve the likelihood of PJM and its stakeholders developing a proposal that is just, reasonable, and not unduly discriminatory.”

Letter from utility executives

Meanwhile, a group of executives from several generation owners on Jan. 29 sent a letter to the PJM board arguing that PJM’s current wholesale power market design fails to reflect the full value of resources providing services, “resulting in inaccurate price signals that undermine efficient investment by our companies and other market participants.”

The letter was sent by Ralph Izzo, Chairman of the Board, President and CEO of Public Service Enterprise Group, Christopher Crane, President and CEO of Exelon Corporation, Charles Jones, President and CEO of FirstEnergy Corp., and Douglas Esamann, an executive vice-president with Duke Energy Corporation.

“While we commend the leadership that you and other members of the PJM Board of Managers have shown in promoting improvements in reserve procurement and pricing in the energy market, these needed reforms provide modest incremental change, but fall short of the fundamental changes that are needed to support baseload electric generator units over the long-term,” the IOU officials said.

They argued that the RTO’s current operating reserve demand curve is out of date, failing to accurately reflect system conditions during scarcity – a problem other eastern RTO/ISOs addressed long ago, although the letter did not cite specific actions by the other RTO/ISOs.

“We remain concerned with PJM’s ability to expeditiously address these types of market design flaws. Specifically, PJM has not been able to adequately navigate the current stakeholder process that was initiated to address key energy price formation issues,” the utility executives wrote.

They said that PJM has not taken the proactive steps needed to value resilience attributes such as fuel security and fuel diversity, of its generating fleet.

“In contrast, other regions, which have successfully implemented critical price formation reforms have been able to move on to new initiatives intended to enhance their energy markets. PJM remains a facilitator to implement changes that achieve stakeholder consensus. This is simply not enough. For example, PJM recently issued a white paper analyzing fuel security in the PJM system.”

They said PJM needs to be more out front and expedient in resolving urgent fuel security issues, especially in light of the December 18, 2018 North American Electric Reliability Corporation report highlighting potential risks from accelerated retirements.

“It is imperative that the Board and PJM act swiftly and decisively on important price formation reforms so that these fundamental issues can be addressed within the PJM markets.”