The following is a contributed article by Todd A. Snitchler, president and CEO of the Electric Power Supply Association (EPSA), and former chairman of the Public Utilities Commission of Ohio.
Faced with a new federal ruling designed to protect consumers by ensuring power generators have to compete to provide reliable electricity at the lowest cost, some politicians are raising the battle cry of “states’ rights,” claiming the states’ ability to choose their power generation mix is under threat.
These officials, under pressure from politically powerful utilities with large lobbying budgets, want to have their cake and eat it too: use taxpayer money to fund power generation projects that either are now able to compete without subsidies or are no longer economic, while leaning on the very same capacity markets they criticize to continue to provide grid reliability.
Politicians say this argument is about the environment and handout-seeking companies say they need the money to bring you clean energy. But don’t be fooled. Acronyms like ZECs and FRRs and threats of pulling out of competitive markets are really about propping up struggling nuclear and coal plants and shielding utility profits from competition.
The reality is this: The market has driven coal plant closures, lowered emissions, ushered in new technology, and lowered costs — forcing competitive power generators to perform at the highest level or bear the cost of poor planning. If state policymakers really want to put customers first, they should preserve the market while evaluating and supporting workable changes to account for environmental externalities.
As America’s competitive power suppliers, who are actively building the grid of the future without subsidies, we say, “Let’s have that conversation.”
State-wholesale market conflicts
The “states’ rights” defense shouldn’t be selectively applied. It’s long been decided that when it comes to questions that cross state borders — such as our nation’s vast, interconnected power grid — a federal decision-maker is the only entity able to make the call.
Since restructuring, states have relied on, and benefited from, regional power markets — utilizing excess supply in other areas when their own supply may be insufficient — to ensure reliability at the lowest possible cost. Now, looking to double dip in taxpayer pockets and the market, certain generators have tried to convince politicians to layer one-off policies onto a regional/wholesale framework.
This trend has created an unsustainable mess, which the Federal Energy Regulatory Commission (FERC) has the duty and authority to fix. FERC has the exclusive responsibility of ensuring wholesale power markets are just and reasonable and reconciling state policy with a functioning regional market. And that’s what the wrongfully-maligned Minimum Offer Price Rule (MOPR) decision is all about.
The inconsistency between state choices and wholesale power markets has reached a boiling point, and it’s time someone closed the lid.
So far, Illinois, New Jersey, New York, Connecticut and Ohio have implemented a messy, expensive patchwork of legislation to provide subsidies for 50-year old nuclear and coal power plants — to the tune of billions of dollars — to artificially lower the price of those resources in the market. They claim support is needed because wholesale power markets do not compensate those resources for the environmental benefits they provide.
Oddly, the legislation only benefits certain nuclear power plants.
You’ll recall politicians rushed to close New York’s Indian Point facility, despite its many environmental benefits. Arguably, if carbon emissions are the concern, all nuclear facilities and all lower-emitting resources should be eligible for compensation for the environmental benefits they provide.
Regional market exit?
Faced with the reality of paying for their costly policy choices, some states are threatening to walk away from the regional markets. While this is hopefully just a threat, consumers cannot risk losing the benefits these markets provide in the name of profits for monopoly utilities — and states can hardly afford the costs they will incur.
Ranking last nationwide when it comes to the amount of money on hand for an economic downturn or emergency, Illinois’ “Rainy Day” fund has just enough to cover 0.1 days of spending, while New Jersey’s fund has been empty since 2009. Meanwhile, Connecticut faces annual billion-dollar deficits.
Regional markets weren’t designed to account for environmental considerations, but there’s no reason they can’t be adjusted to do so. Until we figure out the next steps to accomplish that goal, customers cannot risk losing the existing benefits markets like PJM and ISO-NE provide — and states currently don’t have a better option.
Pulling out of the market to avoid the cost accountability and transparency provided by the MOPR, as suggested by some states and utilities, won’t ensure better outcomes. It will be complicated and costly.
Risking blackouts or dramatic price increases in today’s economy is a non-starter, and the capacity market ensures reliability. Today, regional power markets have abundant power reserves. This safety net will not last if the states continue to introduce policies that are inconsistent with wholesale power markets.
Private investors must have confidence that the markets in which they invest will provide the opportunity to compete fairly and recover costs. Constant revisions to market rules and new state policies only increase uncertainty and, unfortunately, may drive out private capital willing to invest. This asks taxpayers to foot the bill and risks shortages that will impact consumers.
Combating climate change
EPSA supports efforts to combat climate change through transparent, open, and nondiscriminatory competitive markets, such as an economy-wide price on carbon, that allow all resources to compete to reduce carbon and other harmful emissions. Competitive markets that incorporate both environmental and reliability requirements will yield the lowest cost set of resources and technologies that jointly produce the greatest emission abatement while maintaining reliability.
A 20-year track record shows competitive wholesale markets and regional coordination provide the best path to sustainable environmental progress without harming reliability or dumping unfair costs on American families and businesses.
When states pursue expensive, inefficient, and ineffective energy and climate policies, who gets stuck with the bill?
It’s not governors. It’s not legislators or utility commissioners. It’s certainly not utilities who make backroom deals to add charges for a costly power plant to your monthly bills.
The folks who always pay the price are taxpayers and customers who need reliable, affordable electricity to power their homes, run their small businesses, and access emergency services.
If states pull out of regional wholesale power markets, consumers are going to be the ones who bear the cost. There is a better way forward, but it requires real leadership and an honest assessment of the facts to create a durable regulatory framework for sustainable environmental progress.
EPSA stands prepared to lead on this issue and is looking for willing partners to shape tomorrow’s energy market.