NASUCA Annual Meeting November 14 2017 Christina Simeone Director of Policy and External Affairs About Us Kleinman Center for Energy Policy Alumnifunded center at the University of Pennsylvania that works to advance research and education on energy policy issues ID: 742633
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PJM Governance: Can Reforms Improve Outcomes?
NASUCA Annual Meeting
November 14, 2017
Christina Simeone
Director of Policy and External AffairsSlide2
About Us
Kleinman Center for Energy Policy:
Alumni-funded center at the University of Pennsylvania that works to advance research and education on energy policy issues.
Focus on advancing student education and opportunities, supporting faculty research, and conducting applied research.
Governance paper was supported solely by Kleinman Center funding.Slide3
Quick Refresher on Basic Framework
Two Senior Standing Committees
One vote per Member, no affiliate voting
Sector-weighted voting with 2/3 majority to pass
Acclamation voting
Five Member SectorsGeneration OwnerOther SupplierTransmission OwnerEnd UserElectric DistributorNumerous Lower Level CommitteesAffiliate voting (one company may have many votes)Simple majority to passVotes disclosed as %, not broken out by sector
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Federal Power Act Filing Rights
Tariff – PJM/Board have 205 rights
OA – Members have 205 rights
Stakeholder process is in the OASlide4
Does the Process Work?
Very effective when issues less contentious (i.e. acclamation voting).
Less effective on smaller number of high-contention issues (i.e. sector weighted vote).
Conclusion Unremarkable
Typical of multi-stakeholder processes.
Yet, it is still unclear if the stakeholder system is optimally designed to navigate contention and yield compromise. MRC Votes in 2015, 2016Slide5
Has the Process Evolved with Markets?
Major Governance Actions
FERC Order 719 in 2008
FERC Technical Conference in 2010
PJM’s GAST process 2009 – 2011
Minor actionsPJM’s bi-annual stakeholder satisfaction surveysPJM’s regular stakeholder forumsDuring the same time span:Two presidential admins with very different viewsChange in PJM leadershipMarket disruptions (gas/renewables/zero load growth/financial products)Technology advancementsMembership increases
Almost a decade of operational experienceMaturing of market, increased complexity of market designSlide6
Example - Do Member Sectors Still Represent Participants?
New Market Entrants in growth sectors:
Renewable Energy (G.O.)
EE (E.D./T.O./O.S.)
DR (O.S.)
Marketers/Traders (O.S.)
Concerns:
Lack of unique voice
Discourages participation of disadvantaged
Larger sectors reduce individual firm impact
Also - Supplier Advantage @ Lower Level VotingSlide7
Do “Legacy Deals” Still Make Sense?
Members “own” the process via FPA 205 rights
“Legacy Deals” split structural advantage in decision making process and enabled agreement on process.
Example: Structural split in process, use of affiliate votes.
Lower level
– no transparency on vote behavior of affiliates, clear advantage in proposal design phase.Slide8
RTO as a Quasi-Governmental Organization
“National Performance Review” initiative
Benefits
Avoids expanding federal bureaucracy
Develops new revenue sources to fund operations
Exempt from federal central management laws (e.g. compensation limits)Economic-focused values (e.g. use of markets)Entity-specific laws and regulations for flexibilityDrawbacksAccountability?More difficult to control, less responsive to preferences of political superiors, compared to traditional government agencies.
To whom are these orgs accountable?How is the public interest being protected over private interests?Slide9
Are There Incumbent Advantages?
In Theory
RTO/ISO Bias – academic literature presents many theories, which suggest incumbent, supply side bias. Yet to identify a buy-side or new entrant bias.
In Practice
Setting agenda of proposed solutions via lower level affiliate voting.
Example: in SCSRTF, 190 votes cast by 34 respondents. Potential for just ten companies to prevent any proposal from passing.Concentration of resource ownershipIn 2015, over 77% of generation capacity needed to meet PJM’s peak were controlled by just 10 companies. (Excludes reserve margin and renewables.)Resource burden to participateTime & money to participate. Can be addressed through agent.Technical expertise is hardest to level.Slide10
Recommendations
FERC should require PJM (and other RTO/ISOs) to review and evaluate governance process, implement beneficial changes.
Should require future evaluations at regular intervals.
“ongoing responsiveness” principle of FERC Order 719
Explore issues identified herein.
Greater and Enhance State Participation in PJMIncluding some method of formal voting, at least on high controversy issues. Non-conflicted (i.e. governor’s office)States help define and represent public interest. FPA definition of public interest is narrow.Theory – will greater involvement increase state understanding of issues, reduce impacts of political offensive, and reduce distortionary state policy?
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http://kleinmanenergy.upenn.edu/paper/pjm-governance
csimeone@upenn.edu
THANK YOU!