Transcript A ROMP THROUGH RESTRUCTURING… LOOKING BACKWARD TO LOOK FORWARD In-Depth Introduction to Electricity Markets Conference New Brunswick, New Jersey March 17, 2015 Craig Glazer Vice PresidentFederal Government.

A ROMP THROUGH RESTRUCTURING…
LOOKING BACKWARD TO LOOK FORWARD
In-Depth Introduction to
Electricity Markets Conference
New Brunswick, New Jersey
March 17, 2015
Craig Glazer
Vice PresidentFederal Government Policy
PJM Interconnection
www.pjm.com
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©2005 PJM
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©2005 PJM
• Need slide that is black.
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And What Were They Mad About???
At the Wholesale Level…
• Transmission access
– Negotiation of “wheeling rights”
– Discriminatory treatment
– Lengthy litigation: “Refunds to a Corpse”
• Build-out costs
• “Reliability” and “native load” as code
• TLRs, demand ratchets, price squeeze
you name it…
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©2005 PJM
And What Were They Mad About?
At the Retail Level--• Rates significantly above the national
average
• Industrial subsidies for public interest
programs
• Investment stagnation
• Hit to global competitiveness
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©2005 PJM
The Regulatory World Circa 2006
• Reminding the Regulator What
We Got Right: Taking credit for
our accomplishments
• Building on Past Experience:
Learning What Needs Further
Work
• Avoiding the Quagmire of
Inaction
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©2005 PJM
Restructuring: The Good, the Bad and the Ugly
Accomplishment No. 1:
We moved the risk allocation formula:
aka “There was no Enron rate case!”
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©2005 PJM
Pre-and post Enron prices
Mean PJM RTO LMP
$35
$30
Enron
Collapse
$/MWh
$25
$20
$15
$10
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Shifting the Risk
• Consumers are
paying for higher
commodity costs not
“bail-outs”
• If anything, capacity
prices too low
• Markets delivering
signals: We need to
react to them wisely
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©2005 PJM
Increased Innovation
• Market heat rate declines
– Provides fuel adjusted measure of efficiency
– Equivalent heat rate at Western Hub reduced
from 11 MMBTU/ MWh in 1999 to 7.3 MMBTU/MWh
in 2004
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©2005 PJM
Restructuring: The Good, the Bad and the Ugly
Accomplishment No. 2:
We got the fundamentals right!
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©2005 PJM
A Look at Other Industries: Paths Already Explored
• Regulatory solutions: Order 436, FCC
Carterphone Decision
• Behavorial solutions: Order 436,
Telecomm Act of 1992
• Structural solutions: Order 636, AT&T
Divestiture
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©2005 PJM
The Development of RTOs
• Structural Solutions Have Worked
– Eliminating multiple control areas
– Regional planning
– Redispatch in lieu of TLRs
– Maximizing use of the Grid
– Allowing customers to make economic
decisions
– Transparency
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©2005 PJM
PJM as Part of the Eastern Interconnection
• 27% of generation in
Eastern Interconnection
• 28% of load in Eastern Interconnection
• 20% of transmission assets in
Eastern Interconnection
KEY STATISTICS
PJM member companies
900+
millions of people served
61
peak load in megawatts
165,492
MWs of generating capacity
183,604
miles of transmission lines
62,556
2013 GWh of annual energy 791,089
generation sources
1,376
square miles of territory
243,417
area served
13 states + DC
externally facing tie lines
191
21% of U.S. GDP
produced in PJM
As of 4/1/2014
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©2005 PJM
Energy Market: Increased Efficiency
• Lower energy prices across the expanded PJM region
– ESAI’s technical study: region-wide energy price without
integration would be $0.78/MWh higher in 2005 than with
integration.
– Spreading these savings over the total PJM RTO’s energy
demand of 700 terawatt-hours (TWh) per year yields aggregate
savings of over $500 million per year.
Pre-Integration Price Pattern
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Post-integration Energy Price Pattern
eData
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A PJM Overview:
The Basics…
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PJM ‒ Focus on Just 3 Things
Reliability
• Grid Operations
• Supply/Demand Balance
• Transmission monitoring
Regional Planning
• 15-Year Outlook
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Market Operation
• Energy
• Capacity
• Ancillary Services
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PJM’s Control Room
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©2005 PJM
PJM Governance
Independent Board
Members Committee
Electric
Distributors
Transmission
Owners
Generation
Owners
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Other
Suppliers
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End-Use
Customers
Managing a Sea-Change
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©2005 PJM
Proposed Generation (MW)
As of March 2013
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Renewable Energy in PJM
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Increasing Demand Resources
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PJM Wholesale Cost
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PJM Average Emissions (lbs/MWh)
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©2005 PJM
Evolution of Markets
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©2005 PJM
Markets History Timeline
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How PJM Secures Capacity
PJM Capacity Market
15%
85%
Reliability Pricing Model (RPM)
PJM secures capacity on behalf
of Load Servers to satisfy
capacity obligations not satisfied
through self-supply.
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©2005 PJM
Fixed Resource Requirement
Alternative (FRR) (self-supply)
Load Server secures capacity to
satisfy their load obligation.
RPM Structure
3 Years
20 months
May
10 months
Sept
3 months
July
Feb.
EFORd
Fixed
Base Residual
Auction
First
Incremental
Auction
Second
Incremental
Auction
Ongoing Bilateral Market
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©2005 PJM
Third
Incremental
Auction
June
Delivery
Year
May
2017/2018 Base Residual Auction
Clearing Prices ($/MW-Day)
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2017/2018 Base Residual Auction
Clearing Prices ($/MW-Day)
2017/2018 2016/2017
Region
Price
Price
%
Change
Rest of
RTO
$120.00
$59.37
+102%
ATSI
$120.00
$114.23
+5%
MAAC
$120.00
$119.13
+0.7%
PS
$215.00
$219.00
-1.8%
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©2005 PJM
Day-Ahead Market Timeline
12:00 noon
Up to 12:00 noon
PJM receives bids and
offers for the next
Operating Day
12:00 – 4:00 p.m.
Day-Ahead Market
is closed for
evaluation by PJM
4:00 P.M.
4:00 p.m.
PJM posts day-ahead
LMPs and hourly schedules
4:00 – 6:00 p.m.
Re-bidding Period
6:00 P.M.
Throughout Operating Day
PJM continually re-evaluates and
sends out individual generation
schedule updates, as required
(Generation Control Application)
12:00 midnight
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©2005 PJM
Overall Market Timeline
• Ancillary Service Markets
• Generation Capacity Market
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©2005 PJM
Regional Market Benefits
Reliability –
resolving transmission constraints,
gains in economic efficiency from
regional reliability planning – from
$470 million to $490 million in
annual savings
Generation investment –
reduced reserve requirements and
increased demand response result in
decreased need for infrastructure
investment – from $640 million to
$1.2 billion in annual savings
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©2005 PJM
Regional Market Benefits
Energy production cost –
efficiency of centralized dispatch over
a large region – from $340 million to
$445 million in annual savings
Grid services –
cost-effective procurement of
synchronized reserve, regulation –
from $134 million to $194 million in
annual savings
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©2005 PJM
Regional Market Benefits
Total – as much as
$2.3 billion in savings to
the region each year
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©2005 PJM
KEY ISSUES GOING FORWARD
• Market Design
• Transmission Planning, Cost Allocation &
Siting
• Reliability
• Financial Regulation
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©2005 PJM
KEY ISSUES GOING FORWARD
Market Design
• The “Half Slave/Half Free” Problem
• Incenting New Generation
• The Role of States over
Capacity Adequacy
• Demand Response: A
Capacity Resource or a
load forecast adjustment?
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©2005 PJM
KEY ISSUES GOING FORWARD
EPA Clean Power Plan
• Individual state compliance plans
• Compliance options that the market can
reflect
• Compliance options that the market can’t
reflect
• Initial conclusions
• Requests to EPA
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©2005 PJM
KEY ISSUES GOING FORWARD
Transmission Planning
– Competitive Transmission? Competitive
Bidding vs. “Rights of First Refusal”
– The Driver of The Transmission Grid
• Grid as an Enabler or Competitor?
• Strong Grid vs. Localized Grid?
• What are the drivers of
expansion?
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©2005 PJM
KEY ISSUES GOING FORWARD
Transmission Cost Allocation
– A key debate or a costly distraction?
– “Cross-border cost allocation: Voluntary
agreement? Differing rules? Overarching
policy?
Transmission Siting
– What is truly broken? State role? Identlfying
what constitutes need? Or differing visions of
this asset?
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©2005 PJM
KEY ISSUES GOING FORWARD
Reliability
– FERC’s enforcement regime---prosecutorial?
Industry-based? INPO-model?
– Cybersecurity
• Reliance on the NERC model?
• Who has overarching authority over all aspects of
the industry?
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©2005 PJM
KEY ISSUES GOING FORWARD
Financial Regulation
• CFTC Exemption for RTO Products?
• Moving the industry toward centralized
clearing vs. the “end user” exemption?
• Harmonization of regulation between
FERC/CFTC?
• Harmonization of enforcement between
FERC/CFTC?
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©2005 PJM
An Added Complication:
Who Decides?
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©2005 PJM
Who Decides?
• States:
– State Energy Policies:
Governors/legislators
– State PUCs
• FERC
– FERC Review of Planning
• Order 890: Regulating
Process or Results?
• Environmental Agencies
– Non-attainment areas
– RGGI et al.
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©2005 PJM
Avoiding The Quagmire Of Inaction
“Hanging in mid-air”: a dangerous place
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©2005 PJM
• A restructured industry or “Golden memories of
yesteryear…”
– The choice is ours
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©2005 PJM
LET’S TALK…
Craig Glazer
Vice President-Federal Government Policy
PJM Interconnection
Washington, D.C. , USA
1-202-423-4743
[email protected]
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©2005 PJM