As published in the March 1, 2014 Toledo Business Journal
Stu Bresler
PJM Interconnection
Changes taking place in electricity supply
Toledo Business Journal recently interviewed Stu Bresler, vice president of market operations, PJM Interconnection. A number of major issues face the electric utility industry as coal-fired generation plants are idled.
Toledo Business Journal: Can you explain the role and operations of PJM Interconnection?
Stu Bresler: PJM Interconnection coordinates the movement of electricity in all or parts of 13 states and the District of Columbia. We work quietly behind the scenes. Our job is to ensure there is enough electricity for the 61 million people in our region.
We’re sometimes called air traffic controllers of the power grid. PJM monitors and coordinates more than 1,376 electric generators and 62,566 miles of high-voltage transmission lines. Just like air traffic controllers, we don’t own the equipment we direct. Others own the power lines and power plants. Power generators, utilities, and power marketers coordinate their operations through PJM. Doing so makes major electric outages less likely to occur and reduces power costs.
TBJ: What is the specific geographical area that your organization covers?
Bresler: PJM serves 61 million people in all or parts of Ohio, Michigan, Delaware, Illinois, Indiana, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia.
TBJ: Can you discuss the members of your organization?
Bresler: PJM has five different categories of membership. The membership criteria are outlined in the PJM Operating Agreement, which governs the operation of the electric system in the PJM region.
- Full members can participate in the competitive wholesale electricity market and vote in the members committee in one of the five sectors: generation owners, other suppliers, transmission owners, electric distributors, and end-use customers.
- Ex officio regulatory members represent federal and State agencies with regulatory authority over a member; they do not have voting rights on the Members Committee.
- Ex officio state office of consumer advocate representatives have voting rights on the Members Committee as part of the End-Use Customer sector.
- Emergency Customer Load Reduction Program participants are granted special membership for purposes of participating in the program. They do not have voting rights on the members committee.
- Associate Members have special membership status and do not participate in PJM’s markets. They do not have voting rights in any stakeholder activities, committees, or task forces.
TBJ: PJM appears to be counting on demand response to assist in significantly reducing electricity usage. Can you discuss trends in demand response from major business users in the PJM area?
(Note: Demand response (DR) involves changes in electric usage by end-use customers from their normal consumption patterns in response to incentive payments or lower prices designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized).
Bresler: Demand response is one of the resources PJM plans for and uses to meet demand for electricity; demand response competes with other resources in PJM’s forward capacity market. PJM’s competitive capacity market has attracted new generation as well as demand response and energy efficiency. The amount of demand response procured for future years grew to about 14,000 megawatts and has leveled off. Much of the demand response resources are available only during the summer. The Federal Energy Regulatory Commission recently approved PJM’s request to change rules to encourage higher compensation for demand response resources that are available year round (rather than being available only for the summer) because year-round resources have higher value for reliability.
TBJ: PJM also appears to expect that generation capacity outside of its geographical area will be needed to supply demand as coal-fired plants are closed. What impact will this have on electricity rates and on reliability of service in the PJM area?
Bresler: PJM’s competitive capacity market allows generation resources outside of the PJM footprint to compete, and the market has attracted a significant amount of “external” generation capacity. (The market accepts the lowest-cost offers first and takes higher prices until enough capacity is procured.) PJM recently filed a proposal with the Federal Energy Regulatory Commission to limit the amount of external capacity that we can accept in the capacity auction because of reliability concerns. If we rely too much on external generation, there are risks that it can’t be delivered when it’s needed.
TBJ: Can you discuss PJM’s forecast for reserve margin for each of the next three years that is provided through your Reserve Requirements Study (RRS) and the role that the PRISM program play’s in conducting this analysis?
Bresler: The annual PJM Reserve Requirement Study calculates the reserve margin that is required to comply with the regional reliability standard on resource adequacy. According to the standard, the risk of an outage caused by not having enough power resources should be once in 10 years. The results of the study are used in the PJM capacity auction to help determine the amount of capacity resources that will be procured.
The Probabilistic Reliability Index Study Model (PRISM) is PJM’s primary computer program to model reliability by determining the likelihood of an outage resulting from a power shortage.
The study recommends a “safety margin” of resources (generation, demand response, and energy efficiency) that should be procured above the expected peak electricity demand for a year. The safety margin, called the installed reserve margin, is a percentage of the annual peak demand. The 2013 study recommended a 16.2% installed reserve margin for the 12-month period beginning June 1, 2014, and 15.7% for the period June 1, 2015, through May 31, 2018. This safety margin is intended to cover risk factors such as load forecast uncertainty and generator unavailability due to maintenance or forced outages.
TBJ: During July 2013, PJM provided the following statement concerning the reserve margin. “The combination of the growing amount of committed capacity resources being demand response and the increase in generation retirements has resulted in a decrease in the installed generation reserve margin. As a result PJM expects more regular deployment of demand response in system operations.”
Can you discuss this issue and explain the implications for demand response calls to businesses participating in the DR program?
Bresler: As the amount of demand response has grown to be a larger percentage of total capacity resources available to the grid, it is expected that demand resources will be dispatched more frequently to keep power supply and demand balanced. This is expected because the demand resources have displaced new or existing generation resources and, therefore, will be needed on a more frequent basis since the displaced generation resources will not be available. It also points to the need for and higher value to grid reliability of demand response resources that respond throughout the year and more frequently than 10 times. Currently, demand response customers participating in the “limited” (summer only) option can be called on to cut back their electricity usage only 10 times per year, for only six hours at a time and only during the months of June, July, August, and September during a non-holiday weekday.
TBJ: During the difficult cold weather conditions in January, can you discuss the level of direct response calls placed in Ohio – including northwest Ohio – and the role that this played?
This tool was originally established to be used in the summer when peak air conditioning use stretched generation resources. Can you discuss the role that DR will play in the future on a year-round basis?
Bresler: PJM dispatched emergency DR resources in Ohio and throughout our 13-state region on January 7 and 8 to help ensure the reliability of the grid during the cold weather. The extreme weather conditions resulted in high demand and an increase in outages from generation resources, which prompted PJM to use emergency demand response to help maintain the balance of power supply and demand. This issue provides a real life example of the need for demand resources, which have displaced generation to be available for deployment on a more frequent basis to fulfill the needs of the generation that was displaced.
PJM has three different demand response capacity products to better align the underlying customer capabilities to wholesale power market needs. The key difference among the products is the required availability to reduce load when needed to maintain reliability of the grid. The higher-available products have the opportunities to receive more compensation then the lower-availability products. The market rules have evolved over time with the higher penetration of demand response, higher availability outside the normal summer months and to limit the amount of “limited demand response,” which is only required to respond 10 times during the afternoon weekdays of the summer. This market structure will help to balance grid reliability with demand resource availability.