EPSA President and CEO Todd Snitchler participating in the Federal Energy Regulatory Commission PJM Interconnection Capacity Market Forum on June 15, 2023. Credit: FERC
Last week, the Federal Energy Regulatory Commission (FERC) convened a forum focused on market reforms to help ensure resource adequacy across the PJM footprint and enhance the delivery of reliable and affordable power to customers across the region. Participants included PJM Interconnection leadership, power industry experts, economists, generation owners, state commissioners, and other stakeholders. Electric Power Supply Association (EPSA) President and CEO Todd Snitchler participated and shared his support for targeted, prudent reforms that would allow the PJM competitive power market to continue to meet rising demand and adapt to future grid stress.
For nearly three decades, competitive wholesale electricity markets have provided reliable and cost-effective power to customers while incentivizing the deployment of new, more efficient technology and reducing emissions. The PJM Interconnection operates the nation’s largest power market, historically delivering $3.2-4 billion in savings annually. The PJM capacity market, or Reliability Pricing Model, has been a core mechanism to secure reliable generation resources for the region. But changes in state and federal policy, as well as the evolution of the resource mix, changing weather patterns, demand shifts, and other emerging challenges, have made it clear that reforms to market design and PJM’s capacity market will be needed to maintain the market’s high-performance track record, which EPSA has consistently supported. EPSA and our member companies are working to provide meaningful solutions to the new challenges within the PJM market.
Most Forum participants, including FERC Chairman Willie Phillips and Commissioner Allison Clements, voiced support for capacity markets as the best framework for ensuring resource adequacy, while acknowledging that reforms are required to meet the changing resource mix and system needs. Chairman Phillips said in opening remarks that while some of his colleagues point to reliability challenges as evidence that capacity markets should be abandoned, “I believe the capacity markets have brought tremendous benefits.” In a pre-forum statement, Solar Energy Industries Association President and CEO Abigail Ross Hopper said, “Despite its flaws, we believe that a competitive capacity market is the best way to efficiently meet reliability goals.”
Snitchler called attention to the need for proper resource accreditation, adjusting planning criteria, retaining reliable resources, and properly mitigating market power. He also noted that lack of permitting reform impedes the ability to rely on potential new infrastructure being built to fill reliability gaps; the need for generators to be able to access gas supply when needed; and the impact of state policy decisions on markets and generator retirements. While EPSA is working diligently with stakeholders to resolve gas-electric coordination issues, Snitchler emphasized that there is “no silver bullet, not even silver buckshot,” but that giving generators earlier notice that they will be called upon to run would help them secure gas supply. And while acknowledging that states have the right to make decisions concerning their power generation resources, “State policy choices are driving investment decisions both to invest and retire,” he said, “and that’s got to be accounted for.”
Market Design for Electric Reliability
EPSA has proposed the following market design elements and reforms for FERC’s consideration:
- Retain core elements in capacity (and energy) markets.
Existing market structures, like the single clearing price mechanism that helps ensure energy generators are dispatched economically in order to meet demand, and the “pay for performance” model, are widely utilized in PJM and other markets. They help to facilitate the lowest prices for customers while securing sufficient resources to meet demand in a clear and effective manner. Panel participants, including PJM President and CEO Manu Asthana, agreed that the market is “fundamentally sound,” and these key components are workable in any market design moving forward.
- Review the factors that have hampered the ability of capacity markets to provide accurate signals to energy producers.
Several factors, including out of market subsidies and other regulatory decisions, have hampered the market’s ability to send accurate price signals and adequately compensate generators for the resources needed to maintain reliability.
Snitchler said at the Forum, “If load is going to grow, you’re going to need more, not less. You’re going to need both/and, not either/or. But that certainly suggests that you’re going to need certain performance characteristics that will enable your system to operate reliably. And those characteristics will change based on the evolution of the grid.”
- Consider changes to PJM’s reliability planning parameters and other metrics to accurately reflect the changing resource mix and more frequent extreme weather events.
Regulatory and policy decisions have favored renewable energy resources, allowing them to bid into the capacity market with substantially reduced prices that don’t account for their intermittent availability or inability to be dispatched during moments of peak demand and extreme weather. Notably, the planning parameters used by system operators have not changed in decades, and thus do not reflect today’s resource mix or weather expectations.
As Snitchler noted during the panel, “We don’t live in 1950 anymore. So… we’re going to have to look at what we need to be doing in order to properly plan for 2020 and beyond.”
- Ensure generation resources can accurately reflect financial risk in offers.
Bringing new generating resources online is a multiyear planning and development process, and generators cannot begin the process to meet the growing capacity and emission goals of states if policies quickly change and alter the financial calculus of their projects, but these risks cannot be reflected in market offers.
- Ensure sufficient infrastructure is available to meet peak demand and extreme, long-duration emergencies.
Dispatchable generation is a crucial component of a stable grid and market reforms should address the pathways to ensure they are readily available. Although natural gas is currently the fuel of choice for dispatchable generation, in the future, new technologies could fill this role, and markets should be prepared to adapt without a major overhaul.
Building on a Strong Foundation
EPSA member companies have invested billions of dollars in the PJM marketplace and continue to invest in meeting the needs of the 65 million residents across the 13 states and District of Columbia included in the PJM service territory. Following the panel, Snitchler summarized the importance that a functional market will play in overcoming the immediate challenges that face the PJM Interconnection:
“Competitive wholesale electricity markets, while they may appear complicated, are transparent and remain the best foundation to secure reliable power at the least cost, while incentivizing and facilitating innovation and efficiency to deliver cleaner technology and reduce emissions – as attested to by nearly every panelist at the forum. PJM’s capacity market has been an essential tool to properly compensate critical generation resources and secure electric reliability – and will be increasingly important as the nation confronts a variety of factors threatening electric reliability including warnings of the premature retirement of dispatchable resources needed to support intermittent renewables and expanded electrification.”