An Absence of Energy Leadership in a Climate Crisis

August 1, 2019
Photo: Ma. William Carraway/Wikimedia Commons
Mike Jacobs
Senior Energy Analyst

These are interesting times for electricity regulators and legislators in the 13 US states, from the Mid-Atlantic through the Ohio Valley to Illinois, that share authority with PJM and FERC. PJM has been in direct conflict with state activity and autonomy in regulating environmental effects from energy power production. With a hastily retired CEO at PJM and indecision at FERC, states now should stand up for the role of clean energy in PJM, and be heard.

Renewable Energy Standards are law in 29 states plus D.C. Additional state payments to generators are made through ZECs and cost-of-service regulation. Credit: DSIRE. Click to enlarge.

State officials have a variety of policies and goals for the electricity supply for each of their states, from rate stability and economic development incentives, to ambitious renewable goals, to health and safety protections for workers and consumers. Governors and legislators are closer to constituents and respond to the interests of their communities more directly than a regional utility or federal agency. And in light of the federal government’s abdication of numerous duties, this is more true now than ever before.

State decisions on plants

Decisions about new power plants are arguably the largest and most impactful decisions state leaders can make in the energy field. The present tension surrounding PJM and FERC over capacity market rules stems from PJM seeking to abandon the past balancing of funding power plants between states and PJM. The treatment of state clean energy policies in wholesale markets, and in fact the functioning of the PJM capacity market, are now in limbo.

Every state in PJM sponsors payments

Every one of the 13 states plus the District of Columbia have policies of paying power plants in addition to market rules PJM adopted under FERC jurisdiction. Some of these existing practices were directed by state laws establishing renewable energy procurements (known as RPS or RES), as those states promoted customer choice and “de-regulation.” More recently, in response to lower energy prices, some states enacted laws to keep existing nuclear plants from closing (i.e. ZEC payments).

More subsidies in rates than RES or ZECs

But the largest share of plants in the PJM region under state programs are those receiving cost-of-service payments through ratepayer bills. Approximately 40,000 MW, or roughly 20% of generation in PJM, is owned by for-profit utilities (AEP, Dominion, First Energy and PPL) that collect costs for this generation through state-approved customer rates. That fleet is three times larger than the amount PJM identified to FERC as needing PJM’s market intervention to reset prices. PJM’s challenge to the state-supported renewable and nuclear generators has been delayed at FERC. FERC’s initial response—remove all generators that have state-supported payments—was unacceptable to PJM. There is no schedule or approved rules for the next annual PJM procurement of capacity. A stand-off has ensued, and with it we are beginning down the path of living without a capacity market.

What are the stakes?

The stakes are higher than the $6-7 billion per year that consumers pay through the PJM capacity market.  PJM uses the capacity market results to plan the needed transmission, and ensure adequate power plant reserves. The PJM approach is favoring the power plants that contribute to climate change. In the acceptance of past state-supported fossil-fuel burning plants, which have costs recovered in state-set rates, PJM allows old polluting plants to avoid competition.

What are the climate change factors in PJM’s territory? Record-breaking weather is one way to look at climate change. According to a new UCS analysis on extreme heat, historically, there have been an average of 4.6 days per year in the PJM territory with a heat index above 100 degrees. This would increase to an average of 33.5 days per year by mid-century without carbon and methane emission reductions.

Coastal flooding impacting over 2 million homes on US coasts, and 500,000 homes in PJM states alone, is another way to consider the cost of the grid operator ignoring state purchases of carbon-free energy.

This comes down to the familiar conflict between Policies vs. Markets. PJM describes itself as having three core functions: transmission planning, grid operations, and wholesale markets. PJM continues to seek “evolution in its markets to value what policymakers find valuable.” UCS notes an example of PJM adopting winter capacity rights for wind, first on an interim basis and soon to be formalized on a permanent basis.

As is so often necessary in our economy, the state policy goals must be articulated and enforced, and then incorporated into markets. Seat belts for cars, for example, became standard when required by law. Perhaps after many more thousands of injuries, consumers would have selected only cars with seat belts, but policymakers set a policy to protect the public health and safety. The car market includes the cost of seat belts in the price of all cars, and other innovations in the industry can proceed without a stand-off over seat belt policy.

This is how democracy works

In the electricity market, pollution policy hasn’t become as unified and clear as seatbelt policy.  States (and corporations and cities) have adopted clean energy procurement policies to deal with market externalities, those good things and bad things that are outside the prices paid for electricity. This kind of leadership, especially in the absence of leadership at the regional and federal level, is essential. It is also how democracy works, how our federal system is designed, and fortunately how can make progress on getting more of the good things (energy without heat-trapping emissions) that we need to keep our climate and economy in some recognizable balance.