By Rory D. Sweeney
National Harbor, Md. — If, in the coming years, Howard Schneider feels an inexplicable urge to be at the Chase Center in Wilmington, Del., on Thursdays late in the month, he can be forgiven. PJM’s monthly Markets and Reliability/Members committee meetings have been part of his life for the past 21 years.
The first and only nonexecutive chairman of PJM’s Board of Managers retires Wednesday, having reached the limit on terms an individual can serve on the board. It’s a day for which he has had years to prepare, and yet he’s resigned to the fact that he may never be fully ready to let go. (See related story, PJM Board Elects New Chair, Welcomes New Member.)
“[It] is going to be a melancholy day,” Schneider said during an interview Tuesday at PJM’s annual meeting at the Gaylord National Resort & Convention Center on the Potomac River outside D.C. He was only half joking.
And why not? Schneider has been on the board since its inception in 1997 when, PJM — formed as a power pool run by Philadelphia Electric Co. and others in 1927 — completed its transition to an independent organization and became the nation’s first fully functioning independent system operator. He became the board’s first nonexecutive chairman in 2007.
Schneider was there as PJM became the nation’s first fully functioning RTO in 2002 and worked through many market changes since then. He has overseen two transitions of the executive team, from Phil Harris to Terry Boston in 2007 and from Boston to Andy Ott, PJM’s current president and CEO, in 2015.
“Phil was an innovator, very talented, a futuristic thinker,” Schneider said. “Terry was a practical guy who implemented well and had terrific relationships with outside constituencies. I think Andy is a thinker, an innovator also, and I think he tries to find solutions and implement them. I’ve been very, very pleased with Andy’s CEO status. The board was looking for somebody who could carry the PJM flag, and I think Andy does it exceptionally well.”
The More Things Change…
Prior to joining the board, Schneider knew little about the power industry, though he was highly experienced in Wall Street’s exchanges for commodities, securities, futures and other markets. He was the general counsel for the Commodity Futures Trading Commission from 1975 to 1977. That understanding of “pure” markets has informed his appreciation for the challenges of PJM’s administrative markets.
“We were just starting to put LMP into effect. … Capacity markets came on right around that time. It was all sort of new. I don’t really know what it was like before, but you can envision the utilities in effect having vertical dominance over the markets and operating in their own little spheres,” Schneider said. “It’s incredible because [RTO markets], they’re make-believe markets. Every time something goes wrong, there’s another bell that [gets added] on, another whistle that goes on. … There’s always a revision to an artificial market. … as something develops in a marketplace, they make the change that’s necessary to cure that particular thing, which then leads to another change, which leads to another change. So, they’re always evolving markets; they’re never rigid.”
The concept has been evolving since PJM opened its first bid-based energy market in 1997, and Schneider doesn’t expect that to change.
“When you have a [Market Monitor] and a senior staff as innovative as they are, I think you’re going to see change,” he said. “Frankly, I’d like — the stakeholders would like — to see less change so that it stabilizes. … But it’s just the way the world it is. It just changes.”
But some of the foundational pieces, like the capacity market, are likely to remain constant, Schneider insists.
“The sine qua non of PJM has been the capacity market,” he said. “It’s hard to think about … PJM without a capacity market, and it’s served a very useful purpose.”
Schneider remains particularly proud of PJM’s expansion during his tenure, both geographically — in reaching out to Commonwealth Edison’s territory in Chicago — and structurally in the size and variety of its markets. The desire for growth has meant challenges, though.
“There was a time when we were talking about merging New England ISO, NYISO and PJM, and that turned out to be a terribly divisive issue,” Schneider said. “I advocated for it because I thought it would solidify the same concept of expansion out to the west, to the north. … It divided the board a little bit at the time, and I don’t think our friends in New York or New England particularly copped to it, so it was something I think I regret in retrospect.”
Still, Schneider believes that PJM has room to grow.
“The only place you can go is basically to the south, and that’s always a possibility, but it’s nothing that PJM is actively seeking, nor should it. If the opportunity presents itself, it’s certainly a discussion item,” he said.
On market efficiency, he argued they’ve become “almost too successful, in that the prices are so low that resources are finding it hard to make sufficient money to be effective.”
Schneider said he is strongly opposed to anything that might suffocate the market, such as Energy Secretary Rick Perry’s efforts to subsidize coal and nuclear generators.
“I personally believe that this whole business with the Department of Energy and the threat that that creates for markets is an existential threat to PJM itself, it’s very existence, because if you foul up these markets — which is what I think the DOE proposal would do — then you’ve in effect taken away what is PJM’s great strength and characteristic, which is its ability to have functioning markets that have performed so well,” Schneider said. “It’s been an unbridled success, and I don’t want to see that go away.”
He said PJM’s current analysis into the grid’s resilience should determine which way to go.
“I think you have to look at resilience in a very holistic way, and you have to look at it some years down the road,” Schneider said. “Reliability is not a problem. Whether the fuel system is secure five years out, 10 years out, is a question that I think needs to be examined … and we’ll see where that leads. It may lead to something that says, ‘Things are fine; leave it alone’ — although you have a government that’s trying to push in a different direction — or one that says maybe we need to tweak this or tweak that and give a value to some resiliency characteristic that we hadn’t given a value to before.”
The resilience challenge differs from the Capacity Performance changes implemented after the 2014 polar vortex, Schneider argued.
“The point of CP was really to have a system in which outages were very limited to a real inability to perform because of something that was more like an act of god than just because it hadn’t been dealt with in a significant way. … It incentivized generator performance,” Schneider said. “Now you’re in another world of resilience that takes on different characteristics and may lead to something like a significant Capacity Performance-type fix, or it may not.”
He found it hard to identify the most difficult issue PJM faced during his tenure.
“Each problem that you tackle has a problem to it. When we put in Capacity Performance, for example, everybody was complaining, ‘You’re going too fast.’ And, on the other hand, if you didn’t go fast you’d miss the next year, and the thought of generators [having a] 20% outage [rate] or anything like the polar vortex was just [very bad] so we had to move,” Schneider said. “You’re not going to satisfy every constituency. Sometimes the way you know you’ve done something right, is everybody’s mad at you.”
Schneider insists he never worried the lights would go out during the 2014 scare.
“We came close to having to pull back and blackout, so it wasn’t fun. Everybody was worried about that, but we pulled through,” he said of the incident. “I’m never nervous. I have tremendous faith in the management team at PJM. I always have from the very first inception, and you could see they were very talented people who thought things through and came to reasoned conclusions, which I think is all you can ask of people.”
Schneider hedged when asked whether his time on the board matched what he had envisioned, saying it worked out “a little of both” — unexpected and how he had planned. He said he spoke with Ott weekly to determine if anything needed to be reported to the board. “Over 21 years, as you can imagine, there are have been plenty of issues du jour,” he said.
He transitioned quickly to praise his colleagues on the board.
“I think it’s been a very responsible and responsive board, and I think that has contributed to PJM’s success in a great measure. We’ve been fortunate. There are diverse people who come on that board, and I can’t say there’s been a clunker among them. That’s a very pleasant thing,” Schneider said. “We were going to be a true corporate board. We weren’t going to be a stakeholder board or any of the other variants that are around in the ISO community. To me, that principle of being a true corporate board was essential to the success of PJM.”
Schneider emphasized PJM’s “very good relationships with most of the ISOs” and the board’s “deep sense of fiduciary responsibility” to states, the Market Monitor, stakeholders and consumers.
Even with very diverse backgrounds, board members come to consensus, he said. “It is a very, very rare time that we come away with a divided board,” he said.
Going forward, Schneider said he’ll only attend the monthly MRC meetings as a hired consultant advocating for a client. He has been a senior consultant at Charles River Associates since 2010 but “studiously avoided the energy field” because of potential conflicts of interest. Now that those conflicts no longer exist, he’s ready to step into the energy field.
“I loved it,” he said of his run. “It’s been a great experience with some really extraordinary people. I’ve been very pleased by it. … I sure as hell enjoyed it. It’s been great fun.”