The following is a contributed article for Utility Dive by Todd Snitchler, President and CEO, Electric Power Supply Association.
Read article in Utility Dive.
As policymakers in states including New Jersey, Maryland, and Illinois consider exiting PJM Interconnection’s capacity market to pursue clean energy goals, they should look to Virginia as a cautionary tale. Alternatives such as the Fixed Resource Requirement (FRR) come with stark consequences for power customers and questionable environmental gains.
Power prices in PJM were the lowest on record in 2019 and emissions have decreased by 34% since 2005 without mandates or requirements to produce clean energy. Why the rush to abandon a successful system for an option that PJM’s Independent Market Monitor estimates would raise costs in Maryland and Illinois to the tune of $200-400 million?
The latest energy news from Virginia provides an additional data point showing the potential costs of the FRR path.
Last Friday, Dominion Energy, which holds a monopoly over power generation and distribution in Virginia, offered state regulators a clean energy proposal with a stunning price tag: nearly $50 per month added to each customer’s power bill. Yet the utility’s plan only halves current carbon emissions by 2035 — with proposals including the addition of 5 GW of offshore wind and 2 GW of battery storage.
While more cost-effective and efficient options to fight climate change likely exist — after all, onshore wind and solar are increasingly the least expensive energy technologies — the state has nowhere else to turn for power generation solutions.
Dominion’s 2020 Integrated Resource Plan (IRP) is the first filed under Virginia’s Clean Economy Act, which goes into effect on July 1, 2020, and requires 100% clean energy by 2050. The upshot is far from surprising: An aggressive, single-state clean energy goal paired with a powerful utility spells trouble for Virginia families and businesses already struggling financially due to the COVID-19 pandemic.
Dominion touted its plan to “quadruple” renewable energy and energy storage, and many have praised the company’s aggressive renewable additions. Improving our environment is a worthy goal, and one EPSA’s members support, but the headlines miss some key details.
Because natural gas is still the cleanest, least cost option needed to support intermittent resources, the IRP proposes to build 970 MW of new natural gas-fired generation to back up a renewable-heavy grid in all four scenarios. And even the most aggressive options proposed only halve current Commonwealth emissions by 2035.
But what is most problematic about Dominion’s IRP is the most instructive for other states. It’s also the least surprising for those of us who know what happens when generators exert market power.
Dominion estimates that under its second least aggressive option, “Alternative B,” consumer bills will increase by $45.92 a month by 2035. That’s a nearly 40% increase.
Such a hit would raise eyebrows in normal times, but when families and business are struggling to recover from the devastating economic impacts of COVID-19, a massive increase to their power bills is the last thing they need.
How can responsible leaders justify burdening their constituents with this expense when there is a more sustainable, cost-effective path to reduce emissions? Moreover, the financial strain could undermine political appetite for clean energy efforts across the board, putting environmental progress at the whim of the next election and plummeting state revenues.
Dominion has a history of pursuing questionable, over-priced projects. Just last year, the Virginia State Corporation Commission (SCC) was forced to approve a Dominion plan to build a new offshore wind facility despite finding that it would not be “prudent … under any common interpretation of the term” and was the highest cost option proposed.
PJM is the regional power grid serving 65 million customers in 13 states and the District of Columbia, including Virginia. Unlike Virginia, many of the states in PJM require power generators to compete against other companies to build new plants — resulting in a stronger grid and cleaner generation.
While FRR is not an explicit return to the monopoly model that exists in Virginia, it is functionally similar.
Under an FRR, the states oversee resource adequacy decisions and consumers are deprived of the benefits of regional competition and power pooling. Economics 101 tells us that monopolies are bad for consumers and Dominion’s latest IRP proves it — especially when determinations of “just and reasonable” are dictated by statute and not based on the evidence evaluated through a regulatory proceeding.
Competitive power suppliers in PJM and across the nation are retiring unnecessary, costly, and often higher-emitting plants while building more efficient cutting-edge solutions, including renewable resources and battery storage — without asking ratepayers to foot the construction bill. Nearly 31,000 MW of coal generation capacity has been deactivated in the PJM footprint since 2002, resulting in substantial emissions reductions and cost savings.
Meanwhile, back in Virginia, Dominion is proposing a plan that will increase power bills by nearly $50 a month at a time when consumers should be benefiting from the lowest prices on record.
The lesson is clear for Maryland, New Jersey and Illinois leaders. Customers deserve better. Rather than trying to go it alone, PJM states should work together to find regional cost-effective solutions to address and reduce carbon emissions on a wide scale — not highly fragmented approaches that rely on politically powerful monopolies.
At EPSA, we’re working with a broad coalition including renewable developers and economic experts to find market solutions that will achieve sustainable climate progress at a cost Americans can afford. States abandoned the monopoly model for a reason. Let’s not go back now.