Is PJM Costing Consumers $1.3 Billion By Ignoring Energy Efficiency?

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If a corporation’s accounting error could cost consumers $1.3 billion over three years, chances are public outcry would lead to a regulatory correction. But when it’s an energy efficiency calculation across the Mid-Atlantic causing the problem, not so much.

According to a new analysis by the Brattle Group, that’s exactly what’s happening to consumers across PJM Interconnection, America’s largest grid operator – and a wonky term called load forecasting is to blame.

Consumers in 13 states and the District of Columbia could be overcharged $433 million in annual utility bill savings over the next three years, and $127 million annually after that point, because PJM is undercounting energy efficiency’s effectiveness in cutting power demand.

Chip in a few dollars a month to help support independent cleantech coverage that helps to accelerate the cleantech revolution! Missing Over 27 GWh of Energy Efficiency Savings by 2022

Sustainable FERC, an advocacy group focused on policy at the Federal Energy Regulatory Commission, commissioned the analysis, and it paints a troubling picture.

The Brattle analysis reports PJM fails to account for cumulative energy efficiency savings of 11,213 gigawatt hours (GWh) or 1.3% of total load by 2017, and 27,245 GWh or 3% of total load by 2022, equivalent to 3 gigawatts (GW) of fossil-fuel power plants running non-stop.

This gap is attributable to load forecasting, the method PJM uses to forecast electricity demand. According to the report, PJM’s formula ignores actual energy efficiency savings of current and future programs, as well as actions already underway with utility customers. If projected efficiency savings are applied, PJM’s energy demand growth rate declines from 1.1% to .8% from 2014-2022.

“By failing to capture all the savings from existing and planned energy efficiency programs, PJM is over-forecasting future electricity needs, which could significantly increase customer utility bills and lead to unnecessary and expensive construction of power plants that harm their health and the environment,” said Allison Clements, Sustainable FERC Director.

That final point is important to consider from a climate change, public health, and economic development perspective. While PJM has added large amounts of renewables across its system, it also continues to add new natural gas generation while keeping older, dirtier coal plants online to meet expected demand through the regional capacity market.

But Is the Problem Even Worse Than It Seems?

Worst of all, the report may actually underestimate the true amount of “missing” energy efficiency impacts. To start, Brattle’s analysis didn’t include $400 million in savings from deferred transmission infrastructure projects across PJM in recent years.

In addition, Brattle’s analysis relied on utility-reported data published by the U.S. Energy Information Administration (EIA), but data is only available up to 2012, only includes utility-run efficiency programs, and fails to capture savings from building energy code compliance or third-party efficiency programs. For context, when the PJM methodology was applied to data from the New England grid, the calculation reported significantly less efficiency savings than the grid operator and stakeholders actually report.

Finally, PJM’s formula only considers existing and planned utility-run energy efficiency programs but doesn’t include planned state-level efficiency increases. Consider Ohio, where a .8% efficiency savings was required in 2012, but will increase to 2% by 2021.

Follow Other Grid Operators To The Solution

To PJM’s credit, predicting actual energy trends is almost impossible, a point the Brattle analysis cedes. But the report notes other regional grid operators like the New England ISO and California ISO have incorporated stakeholder comments in a more accurate estimate, and that’s how Sustainable FERC recommends solving the over-forecasting problem.

“Follow the lead of these other regional grid operators and initiate a stakeholder working group to examine more rigorously how PJM’s forecasting methods could capture more comprehensively the future amount of energy efficiency rather than leave consumer bill and air pollution savings on the table,” said Clements. “Fixing the problem may take time and commitment, but the payoffs could be enormous.”