The Year to Date in PJM: Operations and Markets Kerry Stroup Manager, State Government Policy PJM Interconnection OMA Energy Committee July 30, 2014 OMA Energy Committee Presentation Outline PJM s mission: maintaining reliability of the bulk power system Bottom line to date: lower wholesale prices Challenges facing the electricity industry PJM Capacity Market outcomes and design changes to assure continued reliability New challenges: USEPA 111(d) rule and Order 745 remand Operational challenges and market outcomes associated with January cold weather Stay tuned for PJM s High Availability Capacity Product proposal 2 1
PJM s Role Ensures the reliability of the high-voltage electric power system Coordinates and directs the operation of the region s transmission grid; Administers a competitive wholesale electricity market that sends price signals to supply resources and load consistent with reliable bulk power system operations; Plans regional transmission expansion improvements to maintain grid reliability and relieve congestion. 3 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 4 2
PJM Evolution 5 PJM Focus on Just 3 Things Reliability Grid Operations Supply/Demand Balance Transmission monitoring 1 Regional Planning 15-Year Outlook 2 Markets Energy Capacity Ancillary Services 3 6 3
PJM Wholesale Electricity Prices 2008-2003 7 Top Challenges Facing the Industry Electricity Demand World s Largest Fuel Switch Natural Gas Interoperability Integration of Intermittent and Demand Side Resources Man-Made and Natural Disasters Extreme Weather Each Challenge is Also an Opportunity Adapted from: EPRI 8 4
Lingering Low Electricity Demand 9 Transitioning from Coal to Gas 2009 to Date: 26,000 MW in Retirement Notices 10 5
Renewable Energy in PJM 11 PJM Renewable Integration Study Findings The primary focus of the stakeholder-requested study was to evaluate the effects on reliability of a higher penetration of renewable resources, not the economic competiveness of renewable generation versus other generation. The study s main conclusion is that the PJM system, with adequate transmission expansion (up to $13.7 billion) and additional regulation reserves (up to an additional 1,500 MW), would not have any significant reliability issues operating with up to 30 percent of its energy (as distinct from capacity) provided by wind and solar generation. The estimated electricity production-cost savings from increased renewable resources depend upon the study s assumptions about future fuel prices, load growth and environmental policies. Current low gas prices have made renewable power less competitively priced. Also, there was no attempt to estimate the effect on capacity prices resulting from lower energy prices. (To maintain adequate capacity resources in the face of lower energy prices capacity prices may increase.) 12 6
What is RPM? Reliability Pricing Model (RPM) is the PJM resource adequacy construct RPM is part of an integrated approach to ensuring long-term resource adequacy and competitively priced delivered energy RPM aligns the price paid for generation and other capacity resources with overall system reliability requirements RPM provides forward investment signals 13 Highlights of RPM Auction Design PJM invites resource-specific sell offers for planning each year, three years in advance Products that may be offered include: existing and planned generation; planned transmission upgrades; and existing and planned demand resources including energy efficiency New generation, new demand response alternatives, and new transmission solutions can compete directly with existing resources 14 7
Capacity Resources Cleared, 2007/8-2017/18 15 Demand Resources in PJM s Capacity Market 16 8
RPM BRA Clearing Prices Rest of RTO 17 2017/2018 Base Residual Auction Clearing Prices ($/MW-Day) 18 9
Future Capacity 19 2007 PJM Installed Capacity PJM s Changing Fuel Mix Capacity Cleared Market for 2017/2018 Delivery Year 20 10
Gas = 75% New Generation by Fuel Type Since RPM Implementation in 2007 35,040 MW Total 21 PJM Capacity Market Reform Clearing of limited DR accepted 1/30/14 Capacity import limit accepted 4/22/14 DR operational flexibility accepted 5/9/14 Replacement capacity filing rejected 5/12/14; PJM request for rehearing filed 6/9/14 22 11
RPM Parameter Triennial Review Brattle review determined VRR not achieving performance objectives at system or LDA level and EAS offset is not accurate, especially for combined cycle technology PJM recommendations are under stakeholder review include: Shift VRR curve right and establish convex shape to better protect against market shocks Adjust CONE values to Sargent/Lundy study estimates; align CONE values more closely with LDAs; maintain CTs as reference to preserve continuity and market stability; adjust certain LDA CONE values to include dual fuel capability and mandate firm transportation only for Cove Point LNG export considerations Calibrate E&AS offset model to reflect actual historical net revenues 23 USEPA Section 111(d) proposed rule and Order 745 Remand have the potential to significantly affect reliability and market outcomes ISO-RTO Council recommendations address reliability and market outcomes PJM has joined Maryland, DC, and other parties in requesting an en banc rehearing of the 6 th District s Order 24 12
PJM States System Emission Reduction Standards 25 Similar to the Reliability Safety Valve for MATS IRC Reliability Safety Valve Proposal Keeps generation resources on-line to maintain reliability until a transmission solution can be implemented to ensure retirements do not jeopardize reliability Proposed Reliability Safety Valve for 111(d) has additional features Up front analysis of SIPs to check for possible reliability issues intra-state and inter-state both long-term retirements and short-term operations. On going analysis after implementation as generation resources may retire well after compliance obligations begin depending on flexibility of SIPs in contrast MATS has a hard deadline for emissions rate compliance Ongoing analysis of retirements same as MATS retirement analysis standard deactivation analysis Ongoing analysis of commitment and dispatch operations as this could be impacted depending how states implement 111(d) 26 13
Measuring Compliance on a Regional/RTO Basis Provide an option for state-submitted plans to measure compliance on a regional/rto basis Leverages the economies of scope and scale and cost-effectiveness of RTO-wide markets and institutions Cost-effective security constrained economic dispatch across an RTO is already taking place and would make compliance more cost-effective Resource adequacy constructs allow for the cost-effective sharing and transfer of resources across the region Region-wide transmission planning process Market rules already exist in RTO markets to account for the cost of environmental compliance in general 27 DC Court of Appeals Order Vacating FERC Order No. 745 5/23 Order is directed at FERC, not PJM whose market operations are governed by its filed rates, unchanged by the court order. Court mandate withheld until requests for rehearing by DC Court of Appeals filed and acted upon; status quo until mandate issued. PJM participated in the appeal supporting FERC and Order 745 despite not agreeing with all elements of the final FERC rule, which concerns compensation for economic demand response in daily energy markets. The Court s Order, however, also suggests that demand response is entirely retail-jurisdictional and has no place in wholesale power markets. PJM is disappointed with the Court s jurisdictional analysis that served as the basis for the majority decision. PJM filed a motion for an en banc rehearing by the DC Court of Appeals of the Order on July 7; FERC, Maryland and the District of Columbia had previously filed for an en banc rehearing.. PJM asserted that rehearing en banc is warranted because EPSA presents a question of exceptional importance whether FERC has authority under the Federal Power Act to approve compensation for voluntary demand-side participation in wholesale electric markets. 28 14
January 2014 Low (& Wind Chill) vs Historical Temperatures Unseasonably Cold Weather in January Region Philadelphia Richmond Chicago Week of Jan 6th 4 (1/7) -18 WC 10 (1/7) -8 WC -16 (1/6) -41 WC Week of Jan 20th 4 (1/22) -17 WC 7 (1/23) -2 WC -6 (1/24) -24 WC Week of Jan 27th 10 (1/30) -3 WC 4 (1/30) 4 WC -11 (1/28) -30 WC Avg Jan Low Temp 25.5 28.4 16.3 All-Time Record Low -7 (1982 & 84) -16 & -33 WC -12 (1940) WC N/A -27 (1985) -57 WC All temperatures are in Fahrenheit and WC denotes Wind Chill 29 PJM RTO Highest Historical Winter Demands 2014 Demands are Preliminary Telemetered Data Pre-2014 Demands include Coincident Demands of Not-Yet-Integrated Zones 30 15
January Forced Outages Compared to History 31 Fuel Types Tuesday, January 7, 2104 - Peak Generation by Fuel type ICAP (MW) Ambient Air (MW) 01/07/2014 HE 19 Generation Outages (MW) Maintenance / Planned (MW) Forced (MW) Forced Outages (% of ICAP) All Fuel Types 188,106-1,491 40,890 1,104 39,786 21% Gas 48,243-734 16,553 428 16,125 33% Plant Outages 11,819 Gas Curtailments 4,734 Coal 65,070-4 12,936 372 12,564 19% Nuclear 33,316-455 1,150-455 1,605 5% Hydro 8,198 12 755 707 48 1% Wind 5,597 0 1,430 32 1,398 25% Oil 9,364-119 4,379-59 4,438 47% Other 18,318-191 3,687 79 3,608 20% 32 16
Gas/Electric Coordination Issues Raised by Polar Vortex Information sharing and coordination enabled by FERC Order 787 Emergency Waivers: daily communication of generation commitment to gas pipelines and implementation of joint status calls Gas pricing Issues January 22 28: gas unit variable costs exceeded the $1000/MWh offer cap for cost-based offers, resulting in FERC approving PJM s emergency waiver request to waive the offer cap through March 31. A PJM Senior Task Force is considering a change or elimination of offer caps for cost-based and price-based offers in the energy markets,if they are determined to be necessary going forward. Differences in gas and electric market schedules Sufficiency of gas infrastructure: EIPC Stucy 33 Cold Weather Demand Response Date Peak Duration Zones MW 7-Jan Morning 5 ½ Hours RTO 1,720 7-Jan Evening 2 Hours RTO 2,920 8-Jan Morning Cancelled RTO 1,960 22-Jan Evening 6 Hours BGE, PEPCO 160 23-Jan Morning 3 Hours Mid-Atlantic, DOM, APS 570 23-Jan Evening 4 Hours Mid-Atlantic, DOM, APS 1,280 24-Jan Morning 3 Hours Mid-Atlantic, DOM, APS 585 34 17
MW Reduction 7/31/2014 2500 Demand Response in PJM: January 7, 2014 Emergency DR 2000 Economic DR 1500 1000 500 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour Notes: Emergency DR Amounts are Emergency Energy Settlement Reductions. 35 Day-Ahead LMP vs Real-Time LMP- Jan 7 36 18
Gas Price per MMBtu 7/31/2014 Natural Gas Prices January 2014 $120 $100 $80 $60 $40 $20 $- 1/1 1/6 1/11 1/16 1/21 1/26 1/31 Henry Market (East) Market (West) Production 37 Load-Weighted LMP, Monthly 38 19
January 2014 Daily Uplift 39 RPM Committed Resources RPM Committed Resources 15.7% Availability 37.3% 40 20
Winter Generation Availability Study RPM Committed Resources DR not available in Winter 15.7% 37.3% X% Winter available units Study determines x such that the PJM LOLE is maintained at 1 day in 10 years. 41 New Winter Capacity Minimum RPM Committed Resources Set a new minimum 42 21
Generation Performance Problem Statement -- MRC Problem / Opportunity Statement During the extreme cold weather conditions experienced on the PJM system in January of 2014, generator forced outage rates were extremely high. As fully described in the PJM analysis of those January events 1, At the all-time winter peak at 7 p.m. on January 7, PJM experienced a 22 percent forced outage rate, which was far above the historical average of 7 percent, with a total of 40,200 MW unavailable due to forced outages. As further highlighted in the report, the forced outage rate during the winter storms later in January was also more than double what would typically be observed on a winter day. The report also indicates that a portion of these outages were due to unavailability of fuel to natural gas-fired generating units. Recommendation #1 at the conclusion of the PJM report states as follows: Unit Performance PJM, in conjunction with members, should consider the following topics and develop adjustments to improve unit performance: 1. Review the penalties for non-performance during peak days and/or days when emergency procedures are issued for capacity emergencies 2. Review incentives for performance during peak days 3. Investigate a process for unit testing and preparation of resources in advance of winter operations, including testing dual-fuel capability 4. Review generator outage rates outlined in PJM Manual 13: Emergency Operations. Items 3 and 4 from the recommendation are already under consideration in the PJM Operating Committee. The purpose of this problem statement is to initiate stakeholder discussion regarding items 1 and 2 in the recommendation. Issue Source PJM initiated this problem statement based on the recommendation stemming from the analysis of the January cold weather events. 43 High Availability Capacity Product Fuel Security Performance Incentives and Penalties Operational Availability and Flexibility 44 22