Will federal rule change hike Pa. consumers’ electric bills?
Renewables, nuclear vs. coal and gas
Pennsylvania electricity regulators and suppliers are grappling with a major rule change that could exclude most new renewable energy projects and other state-subsidized power sources from being paid to be available to feed the nation’s largest electrical grid.
The change — ordered by the Republican majority of the Federal Energy Regulatory Commission on Dec. 19 — is expected to raise the bids of most new solar and wind projects and subsidized nuclear plants so high as to make them uncompetitive in the capacity market run by grid operator PJM Interconnection.
The capacity market — something that many consumers aren’t familiar with, although it impacts their bills — pays power plants to commit in advance to be ready to provide electricity to the grid that serves 65 million customers in Pennsylvania and 12 other states.
That system is set up to ensure the lowest-cost mix of electricity sources will be ready for times of peak demand — like during a heat wave or a deep freeze.
Market observers and renewable energy advocates say the change will entrench the current fossil fuel-heavy mix of power sources feeding the regional grid. And, they say, it will dilute state policies attempting to preserve nuclear power plants and to spur the development of more solar and wind power.
The change is also expected to cost electricity customers more by removing the cheapest power sources from the market and encouraging overbuilding of power supplies in a region that already has more than enough. Although estimates vary, one early analysis projected it could add $5.75 to the average monthly residential electric bill in Pennsylvania.
“What happens is that Pennsylvanians end up paying more money for more fossil fuel electricity and they continue to pay for more capacity than they need,” said Mark Szybist, an attorney and clean energy advocate with the Natural Resources Defense Council.
An unfair advantage?
The Federal Energy Regulatory Commission voted 2-1 to require Valley Forge-based PJM to greatly expand the application of its minimum offer price rule to include most resources that receive a state subsidy.
The minimum offer rule was initially designed to prevent power companies from manipulating the market by bidding at artificially low levels. The majority commissioners — both appointees of President Donald Trump — said state-subsidized resources have an unfair advantage, so they should be subject to the rule, too.
“An important aspect of competitive markets is that they provide a level playing field for all resources, and this order ensures just that within the PJM footprint,” FERC Chairman Neil Chatterjee said when the order was released.
The petition was brought by generating companies whose portfolios are dominated by coal and natural gas — among them Calpine Corp., which owns three natural gas plants in Pennsylvania; Homer City Generation in
Indiana County, now the largest capacity coal-fired power plant in the commonwealth; and Panda Power Funds, which opened three natural gas power plants in Pennsylvania between 2016 and 2018.
What exactly counts as a state subsidy is unclear, but it could be vast.
Some resources that might be swept up by the rule include: new wind and utility-scale solar projects; nuclear plants that receive a subsidy like the one proposed and dropped in Pennsylvania last year; waste coal plants; power projects built by community-owned electric utilities; energy efficiency and demand response programs; and power plants that benefit from the Regional Greenhouse Gas Initiative, a carbon cap-andtrade program that Pennsylvania is seeking to join.
Pennsylvania Public Utility Commissioner Andrew Place said “there are still significant uncertainties” about the implications of the order and much will depend on its implementation.
He said it is reasonable to expect that the change will not significantly affect Pennsylvania’s ability to meet the current goals established by its alternative energy law — goals that are less ambitious than those of surrounding states and that plateau in 2021.
FERC’s order specifically exempts from the minimum offer rule existing renewable resources, demand response, energy efficiency and energy storage.
But Mr. Place said the rule change “does start to bite in years out” as states within the PJM region increasingly adopt policies that support low-emissions generation, like wind and solar combined with energy storage.
That’s because taxpayersupported clean energy projects will still be built to meet state targets, but those won’t be counted in the capacity market. That may falsely signal the need to build more power plants to create a reliable cushion.
“We will have capacity on steroids, and that’s costly,” Mr. Place said.
It is also “quite clear” that it will make energy capacity more expensive, he said, though how much more is uncertain. FERC minority commissioner Richard Glick estimated it could increase capacity costs by at least $2.4 billion a year, which will be passed on to consumers as a rate hike.
Power generation mix
Even as capacity becomes more expensive, an overabundance of electricity sources could cause wholesale energy prices to drop — putting further pressure on economically precarious plants that rely on that revenue, especially nuclear plants, Mr. Place said.
He criticized the ruling for targeting states’ authority to determine where their power comes from.
“It is an argument against states’ choices for their generation mix — in this case, states’ choices for supporting cleaner generating units,” he said. “That is troubling.”
The full Pennsylvania Public Utility Commission has not taken a position on the order. A spokesman said the commission is continuing to review it.
The Electric Power Supply Association, which represents many of the generating companies that pushed for a change in the minimum offer rule, said initial public responses about the order’s impacts “have been largely overstated” and that the cost impacts are unknown.
“The order does not stand in the way of continued renewable integration or our shared environmental goals,” the association wrote last week. “It simply directs us to do so using tools consistent with the competitive market.”
Not all resources depend equally on revenue from the capacity market.
For renewables that produce power intermittently, especially wind, capacity payments make up a relatively small portion of their financial structure.
But Eamon Perrel, senior vice president of business development for wind and solar developer Apex Clean Energy, said without capacity payments, rates for long-term power purchasing contracts could increase 10%-20% for wind and 15%-25% for solar.
“It’s a significant increase,” he said.
Over 92 gigawatts of planned wind and solar projects across PJM will probably be affected by the rule, including about 8 gigawatts in Pennsylvania, he said.
“I think it’s fair to expect that to the extent that people are looking to develop new utility-scale renewables in Pennsylvania, they’ll have to take a second look at those projects now and reexamine how they’re going to finance them,” Mr. Szybist said.
Mr. Glick warned that the ruling also “fundamentally upends” the business model for community-owned electric utilities and cooperatives, including the 35 municipal electric companies in Pennsylvania.
Appeals may come
Stephen Brame, vice resident of public affairs for the Pennsylvania Rural Electric Association, said that group is still reviewing the order.
Its analysis will focus on how the rule might affect the long-term viability of nuclear power — the association owns a stake in the Susquehanna nuclear power plant in Luzerne County — as well as resources that will be built by public power cooperatives in the future.
States and groups that object to the order have until Jan. 21 to petition the Federal Energy Regulatory Commission to reconsider it.
At the same time, PJM has until March to come up with a plan to implement the directive.
Court appeals are expected to follow.
In the meantime, the order may convince some states to pull out of the 13year-old capacity market, especially those that are pursuing aggressive clean energy goals. Illinois and New Jersey have broached the idea, but that kind of dramatic shift has received little consideration in Pennsylvania so far.