Mac McFarland is Talen Energy CEO.
For months, Talen has publicly supported a short extension of the temporary base residual auction price collar to give PJM Interconnection time to implement a reliability backstop auction, or RBA, process that makes long-term price commitments sufficient to incentivize construction of new generation in PJM. On Friday, the White House and a group of governors from PJM states threw their full weight behind these concepts.
Since early Fall, a coalition of independent power producers (which includes Talen) and data center operators has supported an RBA, a process that already exists in the PJM tariff to address reliability reserve shortfalls. With some tweaks to address the current facts and circumstances more directly, Talen believes an RBA will procure the new generation needed to fill the supply gap caused by rising load forecasts.
Friday’s announcement from the White House and PJM governors reflects similar thinking and leans heavily on many of the same market-driven concepts found in our coalition’s RBA proposal. The announcement is short on details but long on reasonable goals. The details can be solved. Where there is a will, there is a way.
Talen believes strongly in competitive markets and an RBA should not be a permanent, ongoing market feature. The concept should be reserved for circumstances where there is a clear shortfall in capacity and threats to system reliability. But it is the answer to today’s problem. Talen fully supports an RBA for the specified amount of new generation necessary to meet the PJM reliability requirements, one where generators compete on price, duration, and the best location for reliability, filling the gap with the lowest priced capacity.
Not surprisingly, Friday’s announcement calls for large load customers to pay for this new generation. We agree with most observers, that the costs of electricity should be paid by those that use the electricity. Electricity should be affordable and reliable for household consumers.
The mechanisms for allocating these costs, however, need to be considered thoughtfully so they do not disincentivize the tremendous economic development that large loads, including data centers, can bring to our communities. We applaud the White House and Pennsylvania Gov. Josh Shapiro’s efforts in this area and think reasonable minds can find the right means to allocate burdens appropriately.
The solution to rapid demand growth is necessarily going to require new supply, especially considering the supply retirements noted in the White House release on Friday. Talen believes the elected leaders are on the right track with their proposal for an RBA.
