CAMBRIDGE, Mass. (December 19, 2019)—Today, the Federal Energy Regulatory Commission (FERC) voted in favor of a proposal made by grid operator PJM that will increase electricity costs for customers across 13 states who get their power from that grid. Estimates range from between $2 to 8 billion per year in additional costs.
The federal commission’s decision, nearly two years in the making, will tilt the market away from low-carbon sources to favor fossil fuel providers and effectively nullify state actions to decarbonize electricity.
The new policy, which applies to PJM’s capacity market, will require customers to pay extra for electricity generated by plants that are at risk of retiring—primarily coal plants—that are not necessary to meet electricity demand. Meanwhile, energy suppliers that receive support from state clean energy policies, mainly existing nuclear power plants and new wind and solar sources, will be required to charge more for the electricity they provide, making them less competitive.
“Federal regulators today have sided with PJM to effectively nullify state laws by excluding power plants meeting state policies from federal markets,” said Mike Jacobs, senior energy analyst at the Union of Concerned Scientists (UCS). “By agreeing to this proposal, FERC is not indifferent to state policies that address carbon emissions—they are actively attacking them.”
The grid operator PJM offered convoluted reasoning for its proposal when it was presented to FERC, describing how it would treat some subsidies in the capacity markets—namely state incentives for clean energy—as “market interference,” while not addressing the more prevalent subsidies that are primarily reserved for older and dirtier plants.
“PJM is pretending there aren’t subsidies in the markets they run, but the irony is they’re everywhere,” said Jacobs, noting that fossil fuel generation sources that receive financial benefits from being in the capacity market are still allowed under the new rule to receive cost recovery support through state public utility commissions. “Now, FERC is rounding up the usual suspects—wind and solar power—but are ignoring the obvious ones under their nose.”
Many states have taken steps to decarbonize their electricity through renewable portfolio standards (RPS) and financial support for nuclear power. Every state on PJM’s grid has an RPS, a nuclear zero emission credit program, or a state cost recovery policy in place.
Under the rule approved today, many power plants supported by those policies will be stripped out of PJM’s capacity market, which provides a designated revenue stream to generating resources to ensure that the demand for electricity can be met at all times. With existing nuclear plants and future renewable sources needed for state requirements removed from PJM’s count, PJM will require customers who receive electricity on its grid to pay for more coal and gas plants.
Today’s decision deepens tensions over whether the federal government or state governments have jurisdiction over certain power supply issues. Caught in the tug of war are places like Virginia, where utilities recover costs through rates set by state utility commissions, and Illinois, which is pursuing clean energy policies.
As long as Northern Illinois continues to rely on PJM to account for plant reserves, for example, Illinois electric customers could pay an extra $864 million or more a year for their electricity. “PJM and federal regulators seem poised to strip away Illinois’s autonomy to chart its own low-carbon future,” said Jessica Collinsworth, lead Midwest energy policy analyst at the UCS office in Chicago, which is served by the PJM grid. “Who will suffer the most from this decision are the thousands of Illinois residents who will now be forced to subsidize fossil fuel sources we neither want nor need.”
The federal commission’s decision offers little solace for most the public in the PJM capacity market. “States served by PJM may require utilities to produce a certain amount of clean energy, but this decision means a lot of it won’t get on the grid. FERC just made it harder for renewables to compete in the capacity market,” said Jacobs.