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Grid Performed Well During New Year's Cold Snap, But Price Reform Needed, PJM Says

PJM Interconnection's electricity grid performed well during the Dec. 28-Jan. 7 cold snap, but a major increase in related uplift charges shows the need to reform pricing for energy and reserves, according to a report released by the regional transmission organization (RTO) Monday.

In the midst of the bomb cyclone, PJM experienced one of its top 10 winter peak demand days -- 137,522 MW on Jan. 5, hour ending 19 -- but neither temperatures nor customer demand reached levels experienced in the polar vortex of 2014, according to the report.

"During the recent cold snap, PJM did not call a performance assessment interval, a 72-hour maintenance recall or any transient shortage intervals," PJM said. "However, the system was well tested and...there were indicators of improved performance of generating resources since 2014. Overall, the grid and the generation fleet performed well. Even during peak demand, PJM had excess reserves and capacity."

The 2017-2018 cold snap lasted longer than the 2014 polar vortex, but temperatures weren't as low and wind chill was less severe.

"Though even at the height of the polar vortex, PJM did not face imminent blackouts, the performance of the generation fleet at that time was not where it needed to be to meet system conditions. There were a significant number of plant outages from generation of all types. There was a significant reduction in forced outages between the recent cold snap and the 2014 polar vortex," PJM said.

While natural gas-related outages made up a large percentage of the total forced outages during the recent cold snap, the actual number of gas outages was more lower than in 2014.

Total forced outages on Jan. 7, 2014 were 40,200 MW, 22% of PJM's total capacity, with 9,700 MW from gas plant outages and 9,300 MW from gas supply outages. On Jan. 7, 2018, total forced outages in PJM were 23,751 MW, 12.1% of total PJM capacity, with 8,096 MW from gas plant outages and 5,913 MW from gas supply outages. Coal outages were also down significantly, falling from 13,700 MW in 2014 to 6,935 MW in 2018.

During the recent cold snap there was an 11-fold increase in uplift charges -- the amount paid to generators when locational marginal prices don't cover the costs of units needed to serve load. Over the past few years uplift charges to PJM have average $389,000 per day; during the peak days of the cold snap uplift charges averaged $4.3 million per day, according to the report.

"We must enhance market pricing so that prices accurately reflect the cost of serving load including the actions taken by dispatchers," said PJM CEO Andrew Ott. “The need for out-of-market uplift payments is a symptom that pricing for reserves and energy is incorrect." Because uplift is not transparent, it increases risk to suppliers and introduces a risk premium to their customers.

Reliability, resiliency and price of fuels has been a talking point amongst grid operators and lawmakers for some time. Last month the Federal Energy Regulatory Commission rejected a controversial notice of proposed rulemaking by Department of Energy Secretary Rick Perry to change the nation's grid reliability and resilience policies, and instead issued a separate order "to holistically examine the resilience of the bulk power system" [AD18-7].

"It's clear we couldn't survive without gas, we couldn't survive without coal, we couldn't survive without nuclear," Ott said during a recent hearing of the Senate Energy and Natural Resources Committee in Washington, DC. "We need them all in the moment. The key is, each of these bring to the table reliability characteristics. Each of these were online when we needed them...

"[But] the pricing doesn't always reflect that. Therefore, when they go off to sell their energy forward, the fact they were on for reliability during the cold weather isn't reflecting in the forward price. That's unfair, that puts them at a disadvantage and we need to fix it."

In November, with a colder winter expected in its service territory, PJM said its members were ready with "sufficient resources" to meet the year's forecasted peak electricity demand of 135,526 MW -- about 2,000 MW below the actual Jan. 5 peak.

PJM serves 65 million people in all or parts of 13 states and Washington DC, where it manages the power grid in a region that includes parts of the Mid-Atlantic, Midwest, Appalachia and the Great Lakes. PJM’s David Souder, director of operations planning, said in October that the company's ongoing efforts to better coordinate natural gas delivery and power generation should have an impact this winter.

PJM's system has increasingly seen an increase in natural gas-fired power generation in recent years, driven largely by the low prices created by Appalachian shale production. From 2010-2016, the system was 33% coal-fired, 33% natural gas, 18% nuclear and 6% renewables. That's compared to 2005, when coal and nuclear resources generated 91% of the electricity on the PJM system.

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