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©2005 PJMwww.pjm.com 1
A ROMP THROUGH RESTRUCTURING…LOOKING BACKWARD TO LOOK FORWARD
In-Depth Introduction toElectricity Markets ConferenceNew Brunswick, New JerseyMarch 17, 2015
Craig GlazerVice President-Federal Government PolicyPJM Interconnection
©2005 PJMwww.pjm.com 2
©2005 PJMwww.pjm.com 3
• Need slide that is black.
©2005 PJMwww.pjm.com 4
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…
©2005 PJMwww.pjm.com 5
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
©2005 PJMwww.pjm.com 6
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
©2005 PJMwww.pjm.com 7
Restructuring: The Good, the Bad and the Ugly
Accomplishment No. 1:
We moved the risk allocation formula:
aka “There was no Enron rate case!”
©2005 PJMwww.pjm.com 8
Pre-and post Enron prices
Mean PJM RTO LMP
$0
$5
$10
$15
$20
$25
$30
$35
2/5/
2002
2/6/2
002
2/7/2
002
2/8/
2002
2/9/2
002
2/10
/200
2
2/11
/200
2
2/12
/200
2
2/13
/200
2
2/14
/200
2
2/15
/200
2
2/16
/200
2
2/17
/200
2
2/18
/200
2
2/19
/200
2
$/M
Wh
Enron Collapse
©2005 PJMwww.pjm.com 9
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
©2005 PJMwww.pjm.com 10
• 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
Increased Innovation
Heat Rates - Major Pricing Hubs
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Jan
-99
Ju
l-99
Jan
-00
Ju
l-00
Jan
-01
Ju
l-01
Jan
-02
Ju
l-02
Jan
-03
Ju
l-03
Jan
-04
Ju
l-04
Jan
-05
Ju
l-05
MM
Btu
/MW
h
AEP CINERGYONTARIO PJMTVA ZONEAVACAR Comed/NI
©2005 PJMwww.pjm.com 11
Restructuring: The Good, the Bad and the Ugly
Accomplishment No. 2:
We got the fundamentals right!
©2005 PJMwww.pjm.com 12
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
©2005 PJMwww.pjm.com 13
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
©2005 PJMwww.pjm.com 14
PJM as Part of the Eastern Interconnection
www.pjm.com
KEY STATISTICSPJM member companies 900+millions of people served 61 peak load in megawatts 165,492MWs of generating capacity 183,604miles of transmission lines 62,5562013 GWh of annual energy 791,089generation sources 1,376square miles of territory 243,417area served 13 states + DCexternally facing tie lines 191
• 27% of generation in Eastern Interconnection
• 28% of load in Eastern Interconnection• 20% of transmission assets in
Eastern Interconnection
21% of U.S. GDP produced in PJM
As of 4/1/2014
©2005 PJMwww.pjm.com 15
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 Post-integration Energy Price Pattern
©2005 PJMwww.pjm.com 16
eData
©2005 PJMwww.pjm.com 17
A PJM Overview:
The Basics…
©2005 PJMwww.pjm.com 18
PJM Focus on Just 3 Things‒
Market Operation• Energy• Capacity• Ancillary Services
Market Operation• Energy• Capacity• Ancillary Services
Regional Planning• 15-Year Outlook
Regional Planning• 15-Year Outlook
Reliability• Grid Operations• Supply/Demand Balance• Transmission monitoring
Reliability• Grid Operations• Supply/Demand Balance• Transmission monitoring
22
11
33
©2005 PJMwww.pjm.com 19
PJM’s Control Room
www.pjm.com
©2005 PJMwww.pjm.com 20
PJM Governance
Independent BoardIndependent Board
Members CommitteeMembers Committee
GenerationOwnersGenerationOwners
TransmissionOwnersTransmissionOwners
Other Suppliers Other Suppliers
ElectricDistributorsElectricDistributors
End-UseCustomersEnd-UseCustomers
©2005 PJMwww.pjm.com 21
Managing a Sea-Change
©2005 PJMwww.pjm.com 22
Proposed Generation (MW)
www.pjm.com
As of March 2013
©2005 PJMwww.pjm.com 23
Renewable Energy in PJM
www.pjm.com
©2005 PJMwww.pjm.com 24
Increasing Demand Resources
©2005 PJMwww.pjm.com 25
PJM Wholesale Cost
©2005 PJMwww.pjm.com 26
PJM Average Emissions (lbs/MWh)
©2005 PJMwww.pjm.com 27
Evolution of Markets
©2005 PJMwww.pjm.com 28
Markets History Timeline
©2005 PJMwww.pjm.com 29
How PJM Secures Capacity
PJM Capacity MarketPJM Capacity Market
Reliability Pricing Model (RPM)
PJM secures capacity on behalf of Load Servers to satisfy capacity obligations not satisfied through self-supply.
Reliability Pricing Model (RPM)
PJM secures capacity on behalf of Load Servers to satisfy capacity obligations not satisfied through self-supply.
Fixed Resource Requirement Alternative (FRR) (self-supply)
Load Server secures capacity to satisfy their load obligation.
Fixed Resource Requirement Alternative (FRR) (self-supply)
Load Server secures capacity to satisfy their load obligation.
85% 15%
©2005 PJMwww.pjm.com 30
RPM Structure
Base Residual AuctionBase Residual Auction
Delivery Year
3 Years
Second Incremental Auction
Second Incremental Auction
Third Incremental Auction
Third Incremental Auction
June May
3 months
10 months
First Incremental Auction
First Incremental Auction
20 months
EFORd Fixed
Ongoing Bilateral MarketOngoing Bilateral Market
May
Feb.Feb.JulyJuly
SeptSept
©2005 PJMwww.pjm.com 31
2017/2018 Base Residual AuctionClearing Prices ($/MW-Day)
©2005 PJMwww.pjm.com 32
2017/2018 Base Residual AuctionClearing Prices ($/MW-Day)
Region2017/2018
Price2016/2017
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%
©2005 PJMwww.pjm.com 33
Day-Ahead Market Timeline
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 – 6:00 p.m.Re-bidding Period
Throughout Operating DayPJM continually re-evaluates and sends out individual generation schedule updates, as required
(Generation Control Application)
12:00 noon12:00 noon
4:00 P.M.4:00 P.M.
6:00 P.M.6:00 P.M.
12:00 midnight12:00 midnight
4:00 p.m.PJM posts day-ahead LMPs and hourly schedules
4:00 p.m.PJM posts day-ahead LMPs and hourly schedules
©2005 PJMwww.pjm.com 34
Overall Market Timeline
• Ancillary Service Markets
• Generation Capacity Market
©2005 PJMwww.pjm.com 35
Regional Market Benefits
Reliability –
resolving transmission constraints, gains in
economic efficiency from regional reliability
planning – from $470 million to $490 million
in
annual savingsGeneration 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
©2005 PJMwww.pjm.com 36
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
©2005 PJMwww.pjm.com 37
Regional Market Benefits
Total – as much as
$2.3 billion in savings to the
region each year
©2005 PJMwww.pjm.com 38
KEY ISSUES GOING FORWARD
• Market Design
• Transmission Planning, Cost Allocation & Siting
• Reliability
• Financial Regulation
©2005 PJMwww.pjm.com 39
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?
©2005 PJMwww.pjm.com 40
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
©2005 PJMwww.pjm.com 41
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?
©2005 PJMwww.pjm.com 42
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?
©2005 PJMwww.pjm.com 43
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?
©2005 PJMwww.pjm.com 44
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?
©2005 PJMwww.pjm.com 45
An Added Complication:
Who Decides?
©2005 PJMwww.pjm.com 46
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.
©2005 PJMwww.pjm.com 47
Avoiding The Quagmire Of Inaction
“Hanging in mid-air”: a dangerous place
©2005 PJMwww.pjm.com 48
• A restructured industry or “Golden memories of yesteryear…”
– The choice is ours
©2005 PJMwww.pjm.com 49
LET’S TALK…
Craig GlazerVice President-Federal Government Policy
PJM InterconnectionWashington, D.C. , USA