Good afternoon, and welcome to the PJM Capacity Market Forum. I want to thank the many panelists appearing here today for their time and contributions to this forum, and I also want to thank my colleagues for their interest in and dedication to improving PJM’s capacity market. I’d also like to give special thanks to Katherine Scott, who has led our great staff’s combined effort to bring this forum to fruition.
PJM is the oldest, largest and most complex RTO – 14 jurisdictions, almost 200,000 megawatts of capacity, and 65 million customers. Hardly a week goes by where the Commission is not called upon to grapple with a tariff revision, a complaint, or a dispute. That underscores PJM’s size, the rich diversity of its resource mix, and the challenges PJM faces, including the overlapping but at times conflicting energy policies of its state members, as well as federal policies that affect PJM’s resource mix and electric loads.
This forum is about resource adequacy in PJM, a topic we’ll hear a lot about today, and rightly so. A market design that doesn’t procure adequate resources isn’t worth the tariff sheets it’s printed on.
Resource adequacy means at least two, interrelated things. First, and most fundamentally, it means that there must be enough supply – as in electrons - to meet demand, plus a sufficient reserve margin. PJM, and the nation as a whole, are blessed with an abundance of energy resources, in the power sector and elsewhere. Between existing, “under development,” and potential future assets, we can meet demand over the next few years. The challenges, however, are manifold, including extreme weather, supply chain issues, siting, load forecasting, and interconnection queues, plus all the issues currently being discussed in PJM’s fast track stakeholder process.
The key takeaway is that we “can” meet the challenge. But NERC, PJM and others have warned us, early and often, that current forecasts could lead to a supply gap in certain regions over the next few years, caused by the accelerating pace of early plant retirements, and a far slower pace in the development timelines to bring new resources into commercial operation.
The good news is that we are keenly aware of the issue: every federal and state regulator, and every developer and consumer, is eying the same trends on this front, and we are all compelled to act. This Commission will work diligently, with the ample tools and resources at our disposal and with the creative talents of our state colleagues and stakeholders, to ensure that we meet the moment.
But let me turn to the second component of resource adequacy. That one has to do with making sure we have the resources in place for the grid to respond, in real time, to the severe, recurrent and now frequent shocks to the system that are the new normal in our industry.
The energy world may be an arcane arena of acronyms, engineering terms, and legal doctrines, but the stakes of getting resource adequacy right are understood instantly by the tens of millions of consumers and businesses that have lived through one or more of these events. Uri and Elliott are our teachable moments.
While we reserve judgment on the package of market reforms that PJM has promised for this Fall, PJM deserves credit for what appears to be an ongoing and rigorous reassessment of its basic assumptions about reliability risk modeling and capacity accreditation. It has turned a critical eye toward long-held assumptions, and zeroed in on the central task at hand: what are the highest risk periods of the year for these disruptive and life-threatening reliability events; how can PJM and regulators best prepare for those events; and what resources must the grid have on hand to respond effectively and expediently to keep the lights on?
Two final thoughts on today’s forum.
First, a key feature of PJM’s ongoing deliberations has been developing and refining its resource adequacy and capacity accreditation metrics, including its development of rigorous analytical tools to create reliability impact estimates for each resource type. Simply stated, that analysis poses the central question: how exactly can we expect the various and diverse resources in PJM’s power portfolio to perform in times of a severe stress that could easily last for several days? A clear-eyed assessment of that capability is the first and necessary step to ensuring that the right resources, no matter what they may be, are fully available when – not if – the next event occurs.
Which leads to my final observation. Some of my colleagues have pointed to the last few years of severe weather events, and the ISOs’ responses to those events, as proof that the capacity markets have failed, and that they should either be abandoned or radically reformed.
I believe that the capacity markets have brought significant benefits, including the major amounts of new capacity that have been added since their creation, but that they now face new and significant challenges, as do resource adequacy constructs in other parts of the country that do not have such markets.
The debate on this topic is too often framed in binary terms, meaning that we are asked to choose between a competitive model and a traditional, cost-of-service regulatory model. I believe this is a false choice; both regulatory models, and every hybrid model in between, are available to us to meet this challenge. I welcome market designs that demonstrably rise to that challenge, but I’m also open to non-market approaches where needed. What is not negotiable is the resource adequacy challenge we face, and the paramount need for stakeholders to develop a durable approach that will meet that challenge, now and in the future.
Thank you again, and I look forward to the important discussion we’re about to have.