Gov. Pritzker Looks to Markets to Achieve Winning Results for Consumers & Clean Energy Goals
Guest Voice: Glen Thomas, President, PJM Power Providers Group
Earlier this month, Illinois Governor J.B. Pritzker put down a marker for Illinois energy policy. As his state wrestles with some heady issues, he sent a clear and thoughtful message that he will put customers’ and taxpayers’ interests ahead of powerful utilities – and allow market forces and competitive solutions to achieve Illinois’ clean energy agenda.
Specifically, Governor Pritzker rejected the notion that Illinois would benefit from exiting PJM’s capacity market in favor of relying upon a utility-centric Fixed Resource Requirement (“FRR”) mechanism. The FRR is a means available to states who would prefer to have their utilities procure capacity instead of using the competitive interstate PJM market – a successful system that to date has saved customers $3.2-4 billion annually while leading to carbon emissions reductions of 34%. The FRR was not designed for deregulated electricity states such as Illinois but was rather a concession to vertically integrated utilities and self-supply entities who wanted to manage their own reliability obligations.
There is no doubt that FRR is an available tool for energy planning. There is significant doubt as to whether it is a wise tool. There is no doubt that FRR consumers pay consistently more for power generation capacity than those consumers that have access to the competitive power market.
By giving preferential treatment to certain resources and companies, choosing the FRR would be a step backward to a less competitive system – removing available or future energy solutions, as well as the pressure to keep costs low and innovate that competition provides.
Governor Pritzker is rightly in the “FRR is bad for Illinois” camp. He understands that FRR means a handsome payday for Exelon’s Illinois nuclear fleet at the expense of other resources in the market. He recognizes that FRR would hit consumers hard with rate increases. He also appreciates the significant market power concerns that would be created by a structure in which ComEd would be purchasing capacity from its own corporate family in a market in which it has significant concentration.
The FRR approach is costly, risky and difficult to implement despite what its proponents will claim. Whether a proposed FRR is in a stand-alone energy bill or packaged in a broader energy re-write, the result is the same. Same construct; same bad deal for Illinois consumers.
While rejecting the FRR, Governor Pritzker is clearly not backing down from his pursuit of clean energy in Illinois. He wants to get Illinois to 100% clean energy by 2050. However, he does not want consumers to pay more than they should to get there.
Instead of a utility-centric generation procurement approach with little oversight like the FRR, Governor Pritzker is proposing a market-based mechanism – a price on carbon – as the vehicle to get Illinois to its goals. Carbon pricing is the much better horse to ride. It has proven results in other sectors, provides market-based protections to consumers and encourages the development of new carbon-reducing technologies.
See EPSA’s statement on carbon pricing and other market mechanisms to allow all resources to compete to reduce emissions.
The transition to 100% clean energy will not be easy and it will likely still come at some increased cost to consumers. But the framework that Governor Pritzker has presented gives Illinois the best shot of getting there with the least burden on his constituents.
There is still a lot of work to do in Illinois. Energy policy is not easy and the details matter. Fortunately, Governor Pritzker’s energy principles will allow the house to be built upon an appropriate foundation. Hopefully, New Jersey and Maryland are watching Illinois carefully.
Read EPSA CEO Todd Snitchler’s article, “Competition Should Drive New Jersey’s Clean Energy Future.”
