Energy leaders look for competitive solutions to state concerns at the Mid-Atlantic Conference of Regulatory Utilities Commissions 25th Annual Education Conference.
The COVID-19 pandemic, cleaner power generation, carbon pricing and consumer costs topped the agenda as state energy leaders and industry experts gathered virtually last Wednesday, June 24, for the Mid-Atlantic Conference of Regulatory Utilities Commissions 25th Annual Education Conference. The conference featured national leaders Federal Energy Regulatory Commission (FERC) Chairman Neil Chatterjee and U.S. Senator Joe Manchin (D-WV) voicing support for market-driven innovation and competition to deliver solutions for our economy, environment and energy needs.
“I believe consumers, the economy and the environment have all benefited tremendously from markets,” said Chairman Chatterjee in kickoff remarks. “I believe markets drive cost discipline and innovation. I want markets to succeed.”
The support for competitive power markets was echoed by Senator Manchin in an interview with West Virginia Commissioner Brooks McCabe, as he discussed the challenging work of addressing our nation’s energy needs, saying, “Now, more than ever, we need to innovate, not eliminate…The market will take us where we need to go.”
It’s clear that state and federal energy leaders believe in the benefits of competition, but how do we ensure policies keep costs low, drive innovation and produce cleaner energy?
Carbon Pricing and a Competitive Path Forward After MOPR
In a panel on “COVID, MOPR and Consumers,” EPSA President and CEO Todd Snitchler joined voices at the heart of a discussion about what the future holds for power generation and customers in PJM Interconnection, the nation’s largest power grid operator serving 13 states and the District of Columbia. Snitchler urged state leader to seek competitive solutions, noting that regional power markets drive down costs and unleash innovation—while options such as the Fixed Resource Requirement (FRR) squeeze out competition to the detriment of customers and progress.
Snitchler’s fellow panelists included PJM Vice President Asim Haque and State Utility Commissioners Joseph Fiordaliso (NJ) and Jason Stanek (MD), moderated by Commissioner Judy Jagdmann (VA). As PJM works to incorporate new FERC-directed rules into its competitive markets, state commissioners have raised concerns with how those rules might impact their energy goals.
Panelists agreed that as questions continue about how state goals and federal rules align, one market-based approach hiding in plain sight could help resolve tensions: carbon pricing.
As part of a diverse coalition including renewable developers, environmental advocates and think tank experts, EPSA was one of the first signatories in April to ask FERC to convene a conversation on carbon pricing in wholesale power markets. We commend FERC in their recent decision to hold a technical conference on the matter later this year.
All panelists noted appreciation for FERC’s action and said they look forward to further conversation at the conference in September.
Commissioner Stanek said, “I’m happy, and I commend FERC for their decision to hold the conference.”
Commissioner Fiordaliso also stated, “We need a level-headed conversation” about energy and environmental issues and said FERC’s decision to hold the conference is a step in the right direction.
Calling FERC’s decision “timely,” Snitchler said, “we appreciate FERC showing leadership to take up a challenging question.” He pointed to carbon pricing’s ability to address multiple goals, helping give businesses needed certainty to make investment decisions while reducing emissions. “We need a thoughtful, forward-thinking policy” that allows stakeholders to “find a solution in the middle,” he said.
FRR Is Fraught With Perils
“Between COVID, unemployment, state budgets with huge holes, is now the time for us to say, in addition with everything else, we are deciding that you will pay more at a time when you really cannot?”
While the FRR is under discussion as a tactic that would allow states to skirt PJM’s capacity market rules to procure power, panelists voiced concern with its impacts for consumers and competition.
Commissioner Stanek said, “These decisions are fraught with perils and trap doors, and I’m concerned while we remove one utility, what’s going to be the effect, not only on state ratepayers, but I’m concerned about PJM entirely,” noting that costs could increase for other states. Commissioner Fiordaliso said that while he is committed to combating climate change, the path forward is “not an easy decision.”
Snitchler noted that the FRR is not only a challenging question, but an expensive one. According to PJM’s Independent Market Monitor (IMM)’s analysis of six scenarios, exiting the PJM Interconnection capacity market and applying an FRR could cost New Jersey ratepayers between $32 million and $386.4 million more than the 2021/22 capacity auction. IMM analysis results in similar increases in Illinois and Maryland. While cost impacts differ according to scenarios and study assumptions, there is no question that limiting competition will lead to higher costs and slow progress in the long run.
“Between COVID, unemployment, state budgets with huge holes, is now the time for us to say, in addition with everything else, we are deciding that you will pay more at a time when you really cannot?” asked Snitchler.
Snitchler also pointed out that the FRR holds the most benefit for companies that see an opportunity to raise revenue by diminishing competition. “Those who stand to gain are most interested in FRR,” he said. “Competitive markets have produced astounding results” versus the results we will see if an FRR is selected in New Jersey. (See: Competition Should Drive New Jersey’s Clean Energy Future).
Snitchler explained that when building a new plant in a competitive market, the responsibility is on company dollars, not ratepayers. “Consumers are insulated from that loss, and that’s the way the market functions best, and it protects consumers the most…The market will solve that question, that unit will probably go bankrupt and not run, or if it is more efficient, it will push out a less efficient unit and you will see costs go down, and most likely in the grid environment, emissions will also go down, and reliability will be maintained, which is ultimately what we are all trying to achieve.”
PJM Vice President Haque also weighed in on the drawbacks of FRR, saying, “Our preference is that states do not move to FRR.” There have been “profound benefits realized through markets,” he said, such as helping achieve “reliability at least cost” in addition to facilitating carbon emissions reductions of 34% since 2005.
The focus, said Haque, should be “how through a market-based construct we can facilitate the outcomes that the states want to see so that states can continue to obtain the benefits of markets for their consumers: reduced costs and efficient entry and exit.”
At EPSA, we are eager to be part of the solution, which must allow all power providers to compete to reduce emissions. EPSA and our member companies are helping states create smart energy policy that benefits consumers and reliability, while providing tangible value to our nation’s power grid. Together, we can look to competitive markets to achieve emissions reductions, keep costs low and keep investment risk with generators and investors, not consumers.
Special thanks to former MACRUC president, Commissioner Brooks McCabe for his leadership, and congratulations to MACRUC’s new president, Chairman of the Public Service Commission of the District of Columbia Willie Phillips.