Roundtable Addresses PJM Gas/Electric Integration Issues

On Thursday October 29th, the Kleinman Center for Energy Policy hosted a showcase roundtable on Gas/Electric Integration Issues in the PJM Footprint. Co-hosted by Raab Associates, the morning event brought in more than 75 industry, academic, and governmental stakeholders to facilitate discussion and share perspectives.

Raab Associates has been hosting an energy roundtable in New England for over twenty years. This was a showcase event to explore the option of holding a regular roundtable at the Kleinman Center.

Marilyn Jordan Taylor, dean of PennDesign, welcomed guests to the Kleinman Center’s first public external forum. She emphasized how this event was following closely in the tradition of PennDesign’s multidisciplinary focus, stemming from Louis Kahn’s “Man and the Environment” program in the 1960s.

Commissioner Cheryl LaFleur, of the Federal Energy Regulatory Commission, spoke about the massive importance of natural gas throughout the US electricity system. In a room containing primarily people from the Northeast, Commissioner LaFleur provided a national perspective on energy dynamics, from the impact of the Clean Power Plan placing CO2 price in the dispatch stack to how renewables are driving natural gas to do more extreme load following. The Commissioner identified FERC rulings that industry might call the good, the bad, and the ugly. Some rulings, such as changing the natural gas trading day, were “ugly” and scrapped. While actions like Order 787, removing barriers to communication between PJM and generators, or changing the biding time for power plants were welcomed as “good.”

Andrew Ott, who became CEO of PJM Interconnection in October 2015, presented a case for further changes to the electricity market. PJM is the largest power grid in North America and the largest electricity market in the world. Both Mr. Ott, and Michael Kormos, the executive vice president and chief operations officer of PJM, discussed the impact of the polar vortex in 2013; where Mr. Kormos “saw the future during the vortex and I didn’t like it.” When the temperatures in the Northeast plummeted, demand for electricity grew massively, leading to substantial strain on the natural gas pipeline system. Mr. Kormos suggested that the infrastructure did not have the ability to keep up with drastically increased demand. PJM is proposing is a form of “Capacity Performance,” which would build in premium pricing for reliability in times of high grid usage or fuel supply stress.

This emphasis was reinforced by Richard Levitan, president and principal of Levitan & Associates, Inc.,  who discussed the critical parts of his EIPC (Eastern Interconnection Planning Collaborative) study. Notably, Mr. Levitan found 27% of gas generation facilities do not have sufficient delivery capacity. This is more extreme in New England, where 99% of the facilities are believed to have insufficient supply for the peak grid demand of the peak day of the year. Such risk is clearly unacceptable.

However, the ambiguous question is: Who will pay for the necessary infrastructure improvements? PJM suggested the pipeline companies would be a good fit. However, Stan Chapman, of Columbia Pipeline, had a different perspective. To him, all the FERC actions on changing the nomination timeline and Capacity Performance pricing is “recarving up the pie.”

Instead, the industry should seek to grow the pie. Columbia is running at full capacity, and is sold out for all natural gas deliveries for the coming year. Developing new pipelines is an extremely long process due to licensing regulations, while the uncertain regulatory environment makes pipeline investment dubious. Columbia’s request for stable, long term, fixed rate contracts is opposed by electricity generating plants, due to the highly variable electricity system which operate on a daily or hourly market.

Fundamentally, all panelists agreed that there was substantial room for integration, growth, and success. Generating stations want to build revenue and not incur fines, the transmission system wants a reliable, consistent, and flexible array of production facilities, and pipelines want to continue to expand their networks. By focusing on incentives instead of penalties, the PJM area is experiencing strong growth—with natural gas staying below $3 until early 2017 (on NYMEX).

Overall, the showcase roundtable successfully demonstrated a diversity of opinions and industries. Each panelist contributed a unique perspective, from utility supply and transmission to consumer advocacy and government regulation.