Center of the storm: PJM CEO Andy Ott on power market reforms for turbulent times

Ott spoke to Utility Dive about leading PJM’s push to reform its operations and pricing for the new energy economy

The PJM Interconnection, the nation’s largest electricity market, is ground zero for many of the most dramatic changes rocking the power sector.

PJM spans 13 states and the District of Columbia, comprising more than 170 GW of generation capacity. Regional transmission organizations have been around 90 years, but PJM’s current role dates back to 1996, when it became the first deregulated power market in the United States.

Back then, operations were relatively simple — a largely coal and nuclear generation fleet with a growing number of gas generators operating on a one-way grid.

More than 20 years later, that fuel mix looks almost unrecognizable. The shale gas boom of the last decade has helped gas-fired plants approach 50% of PJM’s installed capacity. Steady price declines and federal subsidies also encouraged the siting of gigawatts of wind generation, and the region boasts the nation’s largest demand response market.

Those changes have not come without casualties. Cheap gas, stagnating load growth and subsidized renewables have pushed power market prices to historic lows, making it difficult for baseload coal and nuclear plants to compete.

The market changes prompted some generators to push for state subsidies to keep operating, including coal interests in Ohio and nuclear operators there and in Illinois, Pennsylvania and New Jersey. But some stakeholders are worried, with PJM’s market monitor warning the subsidies could “threaten the foundations” of the market.

As PJM’s CEO, Andy Ott is at the center of the storm, overseeing the market’s operations at a time of unprecedented change. In an interview at the Edison Electric Institute’s conference last month, he told Utility Dive that despite the upheavals, PJM’s last few years have been largely successful.

“Certainly the competitive markets are working and getting investments,” Ott said. “We’re seeing reliability at low price, about 30,000 megawatts of new gas combined cycle over the past six years. So, a fairly significant success story.”

But while Ott says near-term reliability is secure, PJM is assessing a number of trends that are causing concern among its stakeholders, including system resiliency, nuclear subsidies and negative pricing offers. The RTO staff has published a raft of papers in recent months outlining the issues, which Ott said will help PJM prepare to deal with any future market or policy shifts.

“The concern I have is not necessarily for the health of the market because we will take care of that,” he said. “We will do the appropriate design changes we need to make the market continues to operate effectively.”

Resiliency

While coal generation is on the wane nationwide, the shift toward gas in PJM has been particularly pronounced. Between 2011 and 2020, the market monitor estimates 28.4 GW of generation will retire, including more than 20 GW of coal.

Those coal retirements, along with high-profile nuclear plant closings, have raised questions among some stakeholders about the resiliency of PJM’s system. During the Polar Vortex of 2014, high gas demand and pipeline constraints rendered some gas plants inoperable. Coal operators argue their plants are needed to ensure reliability in such situations, despite the fact that a few had to shut down during the Polar Vortex due to frozen coal piles.

The argument has been picked up by the Trump administration as well, with EPA Administrator Scott Pruitt repeatedly saying that plants with “solid hydrocarbons onsite” are needed to preserve reliability.

Ott says those issues are just some of the complicating factors in preserving reliability in the PJM region.

“We used to worry about when we’d lose a transmission line or a transformer or a generator,” he said. “Now it’s those plus sabotage, terrorism, cybersecurity threats and the concern is, are operational risks in the power sector being accounted for in day-to-day operations?”

Addressing those risks is what Ott calls the “notion of resilience,” which PJM staff focused on in a March report outlining the reliability implications of the changing resource mix.

The report found that PJM’s system could continue to operate with a portfolio of up to 86% natural gas, although fuel deliverability impacts were not fully captured in the analysis. Similarly, the report found PJM could operate with unprecedented levels of renewable energy penetration, but only with a “portfolio of other resources that provides a sufficient amount of reliability services.”

Moving forward, Ott said PJM will continue to dialogue with stakeholders on the appropriate pricing mechanisms for reliability and resiliency. Last month, it rolled out a resiliency roadmap outlining how it will engage the issue over the next year and beyond.Read full article at Utility Dive