Wednesday, March 20, 2019

State Regulators Still Frustrated with PJM

By Michael Brooks

WASHINGTON — The tension between PJM and certain states has not loosened, judging by comments made at a forum held by the Great Plains Institute and Duke University’s Nicholas Institute on Environmental Policy Solutions last week.

From left to right: Panel moderator Jennifer Chen, Nicholas Institute; M. Beth Trombold, Ohio PUC commissioner; Brien Sheahan, Illinois Commerce Commission chairman; Mary-Anna Holden, New Jersey BPU commissioner; and Norman Bay, Willkie Farr & Gallagher. | © RTO Insider

During a panel on PJM and state authority over resource adequacy, Illinois Commerce Commission Chairman Brien Sheahan and New Jersey Board of Public Utilities Commissioner Mary-Anna Holden took the RTO to task over several issues, including its latest proposal to revise the capacity market to factor in their states’ subsidies for zero-emission resources.

Holden said that while she thinks the relationship between her state and PJM has improved, she was incensed by a recent letter from the RTO’s Board of Managers giving stakeholders a Jan. 31 deadline to reach consensus on several energy price formation issues. (See PJM Board Demands Action on Energy Price Formation.)

“We’d like to have representation in the stakeholder process,” Holden said. “Yes, a stakeholder process takes place, but we’d like to have respect in the stakeholder process. And that when we’re moving towards an answer, not to come out with a letter of decree from PJM saying, ‘Well, you didn’t work fast enough, so we’re just moving ahead,’” she continued, holding a copy of the letter aloft. “That’s not good governance, and that’s not communicating or collaborating.”

“I would second all of that,” Sheahan said. “I think the letter certainly has rubbed people the wrong way.”

Sheahan expressed appreciation for PJM’s position. “They have a very, very difficult job. … There is enormous tension between the job they have and the policies that states express.”

But, he added later, “I really don’t know how that tension gets resolved.” He noted that he has advocated for Commonwealth Edison, whose Chicago service territory is in PJM, to join MISO, which encompasses the rest of Illinois. But he said the solution may be for the state to not participate in PJM’s capacity market. “I think PJM may just have to decide, ‘Look this is the best we can do, and if it doesn’t fit for your state, we have some other alternatives.’”

Joe Bowring | © RTO Insider

Sheahan’s opinion echoed that of Independent Market Monitor Joe Bowring, who gave a presentation on several PJM market issues prior to the panel, including his firm’s own proposal for the capacity market. “If units don’t clear, then as far as we’re concerned, they’re not capacity resources,” Bowring said. “If states want to maintain them, they’re free to do that, but they do not get capacity market revenues. So the capacity market does not change; we don’t need some hugely complicated, impossible-to-understand set of rules to make sure they really clear and force out competitive units. If they’re not competitive, they’re not competitive; they should not clear. …

“If you want to maintain cost-of-service regulation in the state, that’s fine, but rather than acting as if you were a market competitor, you should simply offer in as” a fixed resource requirement.

The RTO’s energy market is working well and also does not need a complete overhaul, Bowring argued. On that point, Norman Bay, a former FERC chairman who is now a partner at Willkie Farr & Gallagher, agreed. Throughout the panel, it often fell to Bay to act as a calming presence as a counter to Sheahan’s and Holden’s frustrations.

“We should acknowledge that the energy market in PJM works well, and it’s producing competitive outcomes from which consumers have benefited,” Bay said. “PJM deserves a lot of credit with respect to the energy market. It’s the capacity market that seems to have engendered the greatest amount of controversy.”

Bay suggested asking FERC to hold a technical conference on stakeholder processes in RTOs and ISOs. He cited the D.C. Circuit Court of Appeals ruling last year that FERC had overstepped its bounds in suggesting to PJM what revisions to the RTO’s minimum offer price rule it would accept. (See PJM MOPR Order Reversed; FERC Overstepped, Court Says.)

The ruling, written by now Supreme Court Justice Brett Kavanaugh, said the commission could only suggest minor, technical or administrative changes, not “modifications that result in an entirely different rate design than the utility’s original proposal or the utility’s prior rate scheme.”

“Thus, the RTO/ISO stakeholder process is more important than ever,” Bay said. “Which means that, given the importance of the process, I think it is critical that stakeholders have a seat and voice at the table.” He said many stakeholders — not just state regulators in PJM — have concerns about the processes.

Richard Glick | © RTO Insider

FERC Commissioner Richard Glick, who gave a keynote luncheon speech at the event, noted that as well. He said he attended a recent Edison Electric Institute conference, and “I was amazed at how many people came up to me to complain about RTO governance in general. … People from all sides of various issues.”

He said it would be worthwhile for FERC to look at the issue, though he did not have any specific suggestions. Both he and Bay noted that it had been a long time since the commission examined RTO governance. In 2008, FERC Order 719 required that each grid operator “increase its responsiveness to customers and other stakeholders.”

Sheahan’s and Holden’s sentiments have been shared by other regulators on their commissions this year. (See PJM Flexible on Capacity Rules, Ott Tells OPSI Meeting and NJ Regulator Threatens to Exit PJM Amid States’ Complaints.)

For his part, Bowring said he believes that PJM stakeholder process, “as difficult as it is, has been working just fine. … The stakeholder process is messy … it could be made more efficient. But real issues are debated, real interests are debated and, from my perspective, it has worked very well. The fact that it doesn’t do what one party or another wants, as quickly as they want, is not a sign that it’s not working; it’s a sign that it is working.”

Stu Bresler | © RTO Insider

Stu Bresler, PJM senior vice president of markets and operations, defended the RTO’s capacity market filing in a presentation prior to the panel. PJM’s proposal was “really, despite what you may read out there in the press, aimed at accommodating these state policy decisions.”

“There are no easy answers. There are very tough questions with which we are all wrestling,” Bresler said. “From PJM’s standpoint, what we want to do is make sure that we continue to engage with our federal regulator, our state commissions and all our stakeholders, to work our way through these issues.”

“PJM is a member organization,” spokesman Jeff Shields said in an email. “The decision to remain as a member resides with those PJM members.

“We respect the rights of states to determine the mix of generators within their borders, and we have worked with FERC and our stakeholders on recently filed proposals that seek to maintain the integrity of the market while respecting state policy initiatives.”

Looking Ahead

True to the event’s name — “Looking Ahead: Big Challenges in 2019” — many attendees asked speakers and panelists how they thought FERC might rule on the capacity market proceeding.

The abridged version of everyone’s answers: No idea.

But whatever FERC issues, many speakers hoped for a solution that lasts. “It would just be nice to have some consistency,” Holden said. The capacity market “has changed 30 times in 10 years,” she said.

“I don’t know where the commission will end up on this, but I do think that whatever design the commission considers, that it should be sustainable and durable,” Bay said. “I think that it is very hard for stakeholders to deal with significant changes to market design every few years.”

“Good market design is self-sustaining,” Bowring said in closing his presentation.