The Surprising Ground Zero for Electricity Market Fights
Look to the East and you’ll see a major initiative to transform New York’s electric grid into a cleaner, more efficient system. Look to the West and you’ll find ambitious clean energy legislation in California.
Yet utility executives and federal regulators recently gathered in the Midwest to highlight how this region is ground zero for key electricity-market debates. Anyone concerned with fair, affordable electricity should be paying close attention.
Federal Regulator Warns of an Unsustainable Future
To start, there was the Mid-America Regulatory Conference in June, during which Tony Clark, then of the Federal Energy Regulatory Commission (FERC), said disputes playing out in Illinois and Ohio represent the major challenge facing the electricity industry at a critical juncture in its evolution. These states are part of FERC-regulated wholesale markets that rely upon market signals to determine when power generator companies invest in new units or close an old one. Yet the low costs of natural gas, efficiency, and renewables are pushing some utilities to seek subsidies for their aging, unprofitable coal and nuclear plants.
Clark worries such “out-of-market constructs” would distort price signals and lead to “a really, really unsustainable future.” Environmental and consumer advocates tend to agree, viewing such requests as unnecessary subsidies that would increase electricity bills. Moreover, by propping up uneconomic generators, these subsidies would distort markets in ways that discourage investment and innovation.
Utilities with unprofitable power plants, as might be expected, see the issue differently. In Illinois, Exelon is currently arguing that subsidies for its Clinton and Quad Cities nuclear reactors are needed to preserve jobs and taxes in local communities. In Ohio, FirstEnergy and American Electric Power (AEP) used similar arguments to seek a $6 billion bailout for their uneconomic coal and nuclear facilities, yet FERC effectively blocked those efforts.
Nervous Utilities Try to Undo Competitive Electricity Markets
Around the same time, in Chicago, there was the annual convention of the Edison Electric Institute, the trade association of investor-owned electric utilities. The Clean Power Plan—the nation’s first-ever proposed limits on carbon dioxide emissions from power plants—dominated last year’s gathering, but earlier this year the Supreme Court put the plan on pause while a lower court reviews it. That move, combined with Congress’s extension of renewable energy tax breaks, have shifted the CEOs’ focus to what they describe as “reforming the nation’s organized markets.”
Those markets, created in the late 1990s and early 2000s, allow independent power producers to compete against each other in about two-thirds of the nation. PJM Interconnection, which covers multiple states in the Midwest, including northern Illinois and Ohio, is the largest of those markets and admits such competition has led to reliable power and lower electricity prices. Reduced costs are obviously good for customers, but generation company leaders worry those reductions contribute to their own “slow roll bankruptcy.” ….