Subtle move by Trump FERC worries clean energy supporters

Source: Benjamin Storrow, E&E News reporter • Posted: Saturday, July 7, 2018

A recent decision by the Federal Energy Regulatory Commission promises to overhaul the PJM Interconnection, America’s largest wholesale electricity market. Exactly how is a matter of debate.

At first glance, FERC’s decision to reject PJM’s proposal to overhaul its capacity market would appear to favor coal and natural gas plant owners. The ruling essentially requires power plants that receive a state subsidy to choose between their subsidy or the capacity market. In other words, they cannot do both.

But a closer look raises questions for coal plants, too. FERC’s order could be expanded to include any future assistance doled out by the Trump administration. It could also lead to the decline of the capacity markets that have served as a sanctuary of sorts for coal and nuclear plants seeking shelter from low wholesale power prices in recent years.

FERC’s decision is preliminary, but it has the potential to alter the fuel makeup of PJM and, by extension, the trajectory of U.S. climate efforts.

Some environmentalists say it could have an even greater impact than the Department of Energy’s consideration of a plan to use its emergency powers to keep coal plants open.

“The shiny ball is what DOE is cooking, but the real concern to zero-carbon resources are actions like this move,” said John Moore, who leads the Natural Resources Defense Council’s Sustainable FERC Project.

At issue in FERC’s case is PJM’s capacity market, which acts as a backup to daily electricity trading. PJM basically pays power plants to operate on standby, ensuring that they are available at times of peak demand.

Coal and nuclear plants have become increasingly reliant on the capacity market in recent years. Their high operating costs make it harder for them to compete in daily electricity markets saturated with natural gas and growing amounts of renewables, which have no fuel costs and are backed by federal subsidies.

The problem is that the capacity markets alone are not enough to keep some plants open, and states have started to intervene in order to prevent nuclear facilities from retiring. Illinois and New Jersey both passed legislation providing for large bailouts of nuclear facilities.

That has drawn cries of foul play from the owners of natural gas plants in particular. Their argument: State subsidies distort capacity markets by allowing nuclear facilities to bid into the market at prices below their operating cost.

States reacted warily to the decision. New Jersey officials said they were reviewing the order.

Brien Sheahan, chairman of the Illinois Commerce Commission, was more strident.

The FERC order countermands Illinois’ environmental policies by opting for a solution that “ignores the environmental impacts of certain electricity generation types,” Sheahan said in a statement. “Such action is likely to force Illinois’ carbon-free resources out of the PJM capacity market and require Illinois electricity consumers to bear the associated financial and environmental costs.”

Exactly how FERC’s ruling would work remains unclear. State renewable portfolio standards require utilities to acquire certain amounts of renewable energy but generally do not provide actual subsidies. New Jersey and Maryland are exceptions, as both offer incentives for offshore wind developers.

Greens nevertheless believe it places a thumb on the scale in favor of coal and natural gas.

“This order clearly preferences fossil resources,” Moore said. “Coal plants are not getting the types of subsidies that FERC is concerned about. Gas plants are not getting the type of subsidies that FERC is concerned about. All things being considered, this is an order that preferences fossil resources over zero-emission resources.”

Others are less sure whether coal will emerge a winner. If enough nuclear facilities, say, decided to keep their subsidy, neglect the capacity market and sell their power in the daily energy market, where most electricity is bought and sold, that could lead to the unwinding of one of the few markets where coal plants can make a dollar.

That is why coal interests like the American Coalition for Clean Coal Electricity (ACCCE), a trade group, are less than enthusiastic about the order. ACCCE Chief Operating Officer Michelle Bloodworth believes the decision will do little to stem the recent wave of coal plant retirements. In her estimation, the Department of Energy’s consideration of a plan to invoke its emergency powers in the name of national security to keep coal plants open is more important.

“The relief is going to have to come sooner rather than later, or we’re going to continue to see accelerated retirements,” Bloodworth said.

Even the nominal winners in FERC’s decision are wary, largely because so many questions remain. Among them: Would wind and solar plants that receive federal subsidies be required to choose between the government payment and the capacity market? What about any assistance that coal plants might receive from the Trump administration?

The Electric Power Supply Association, a trade group made up of oil and gas interests and power plant owners, said it was “encouraged by the FERC majority’s determination,” but added that it would remain active in upcoming proceedings to “ensure an effective remedy that preserves a robust competitive wholesale market in PJM.”

The final outcome won’t be known until later this year. That’s because FERC, as part of its order, opened a 90-day paper hearing on its own proposal. Beyond forcing a decision between subsidy and capacity market, the U.S. energy regulator wants PJM to establish a price floor for power plants that bid in its capacity markets. PJM had proposed a minimum price bid for its capacity auction, but FERC said it contained too many exemptions, among other things.

What FERC decides next could keep more coal and gas plants online at the expense of nuclear and renewables. Or it could mean a wider shift away from the capacity market, a move that may favor renewables and nuclear — all of which helps explain why climate activists are tracking the decision so closely.