Governors rebuke managers of largest US electric grid

The sun sets behind power lines in Gaithersburg, Md., Oct. 23, 2020. Rising electricity costs have fueled much of the fury for a bipartisan group of governors in the service area managed by PJM, a nonprofit that oversees the power grid for 13 states and the District of Columbia. (Samuel Corum/The New York Times)

By Ivan Penn

Angry with the rising cost of electricity, a bipartisan group of governors earlier this week demanded a bigger oversight role in the nation’s largest power grid, saying its managers had failed to rein in costs that have hurt consumers.

A representative for 10 governors said at a meeting of PJM, the nonprofit organization that manages the electric system for 67 million people from Chicago to Virginia Beach, Viginia, that the grid operator had lost confidence across the 13 states it serves.

The representative, Glenn Davis, who is director of the Virginia Department of Energy, said the governors were seeking a role in appointing two members to PJM’s board to help improve operations.

“Today, across the region, there are widespread and legitimate concerns about PJM’s current trajectory,” Davis said during a meeting at PJM’s headquarters in Audubon, New Jersey, near Philadelphia. “This is not the matter of a single decision or solitary event, but a consistent pattern of halting, inconsistent and at times contradictory decision-making that has undermined confidence in PJM’s stewardship.”

In response, some PJM supporters and members at the meeting Wednesday said allowing governors to recommend board members could jeopardize the organization’s independence.

“The direction that it sounds like we’re going here is the states want to have an outsized impact on the board,” said Paul Sotkiewicz, a former chief economist at PJM who is now the president and a founder at E-Cubed Policy Associates, a consultant to the grid manager. “I think we’re getting dangerously close to violating independence. PJM is a convenient whipping boy.”

In a letter to PJM last week, nine governors criticized the lack of control over rising electricity costs. PJM’s grid serves all or part of New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia, North Carolina, Tennessee, Kentucky, Ohio, Indiana, Illinois, Michigan and the District of Columbia.

“As our regional grid confronts intertwined reliability and affordability crises, PJM itself faces an unprecedented crisis of confidence from market participants, consumers and the states,” the governors wrote in the letter. “In the past, other regions looked to join PJM due to its many strengths; today, across the region, discussions of leaving PJM are becoming increasingly common.”

A 10th governor, Mike DeWine, R-Ohio, sent a separate letter to PJM making similar points.

In June, The New York Times reported that Democratic and Republican governors were increasingly angry and frustrated with PJM. Many of them have said the nonprofit is not doing enough to check the rising cost of electricity, including by not moving quickly enough to add cheaper sources of energy to its grid.

State officials have been communicating with one another about their concerns, including what they say is the nontransparent way in which PJM makes important decisions about the grid. The officials also say the nonprofit, which is run by industry representatives and overseen by a federal regulatory agency, is not sufficiently accountable to state lawmakers or residents.

In response to the governors’ criticisms, PJM’s board said it shared the desire for appointing the most qualified candidates to its board.

“While perspectives may differ, PJM remains focused on its core mission: delivering reliable, affordable power to 67 million people and navigating complex stakeholder priorities with transparency and integrity,” the organization said in a statement Wednesday.

PJM has a 10-seat board of managers, all of whom have spent most of their careers in the energy industry or in other senior corporate jobs. It also has more than 1,000 voting members, most of which are utilities, power plant companies, transmission-line owners and energy traders.

Most of those voting members have a direct financial stake in the organization’s decisions. Members typically vote on policies and issues. Some of the member votes are public, but others, including at smaller committee meetings that make preliminary decisions, are not.

PJM is regulated by the Federal Energy Regulatory Commission, but energy experts say that agency does not have the ability to closely monitor regional grid operators.

The price of electricity has steadily risen over the last several years after decades of gradual increases. The cost of electricity for residents of Delaware, Maryland, New Jersey, Pennsylvania and Virginia has increased between 23 and 40% over the last five years, federal data shows.

Before jointly confronting PJM, some governors had begun challenging the organization individually.

In December, Gov. Josh Shapiro, D-Pa., sued PJM after its annual auction in which power plant owners submit the price they are offering to supply energy when demand surges, which often happens in summer. The prices set in the auction would have resulted in big rate increases for electricity users. As in many such auctions, the winning bid sets the final price for all generators, meaning even plant owners willing to accept less money are paid the higher prices.

Shapiro and PJM reached a settlement that caps the price set by the auction. The governor said the deal would save Pennsylvanians $21 billion over two years.

A new auction Tuesday resulted in a 22% increase in the wholesale capacity price across the entire PJM market. Rate increases will be higher in some states and lower in others.

A new auction Tuesday resulted in a 22% increase in the wholesale capacity price across the entire PJM market. PJM estimated that the auction price would increase retail bills by 1.5% to 5% in most of its service area.

That means residents and businesses in the PJM service area are likely to see their bills increase, according to one utility executive, Calvin Butler. He is the president and chief executive of Chicago-based Exelon and chair of the Edison Electric Institute, a utility industry trade organization.

Butler said the higher prices resulted from several compounding challenges, including rising demand for electricity, aging grid infrastructure and a limited supply of power.