Governors' Wind Energy Coalition

Three US states are weighing secession from a portion of the largest US power market, concerned that a new federal policy will counteract efforts to use cleaner energy.

New Jersey, Maryland and Illinois are examining an exit after the Federal Energy Regulatory Commission handed down an order that critics say favours fossil fuels over renewables. The biggest utility in Virginia has also said it is preserving the option if necessary.

The moves are part of a widening schism between the US government and states over climate change. President Donald Trump has pledged to abandon the Paris climate accord and shredded the anti-coal federal Clean Power Plan.

Some states are taking climate policy into their own hands, passing aggressive targets for zero-carbon power and offering financial incentives for solar, wind and nuclear plants.

The “minimum offer price rule” mandates a floor price for generators bidding into capacity auctions held by PJM Interconnection, which operates the grid network and power markets serving 65m people from Chicago to mid-Atlantic states. Ferc commissioners voted on partisan lines to apply the rule to state-subsidised clean energy.

The rule could damage the economics of new projects such as offshore wind farms, as they could no longer lean on state help to underbid older, dirtier resources like coal power stations. The rule will “effectively eliminate some of our resources from receiving payments” for capacity, said Jason Stanek, chairman of the Maryland Public Service Commission.

Utility regulators from Maryland and New Jersey have filed suit against Ferc in a federal court, asking judges to decide whether the federal order “unlawfully usurps state jurisdiction” by undercutting their policies.

“We’re at a crossroads,” said Mr Stanek, whose state was a founder of PJM and is the M in its name.

One issue is whether competitive markets set up to efficiently dispatch electricity can account for the costs of climate damage created by burning fossil fuels.

New Jersey, Maryland and eight other north-eastern states belong to a separate regional greenhouse gas emissions market. But the price of compliance credits is far below what experts believe is necessary to force a transition to lower-carbon energy sources, with last week’s auction settling at $5.75 per short ton.

“Taking control of our own resource mix may be the only way to stop the Trump administration’s attempts to prop up fossil fuels to the detriment of our clean energy programme,” Joseph Fiordaliso, president of the New Jersey Board of Public Utilities, said when the state began to examine alternatives to the PJM capacity market this spring.

In Illinois, a bill introduced in the legislature would require a state power agency to take over the job of procuring capacity for ComEd, the electric utility serving Chicago that lies inside the PJM region, according to ClearView Energy Partners, a research company.

PJM, founded in 1927, has been operating wholesale power markets for more than 20 years since deregulation of the electricity industry. The Ferc order applies only to the $10bn-a-year capacity market, not the larger market for immediate delivery of electricity.

Ferc issued its order after the generation company Calpine complained that PJM was suppressing wholesale electricity prices by allowing subsidised resources to compete with state help. Chairman Neil Chatterjee in December said it would “provide a level playing field for all resources, and this order ensures just that within the PJM footprint.”

The decision is reverberating beyond the PJM region. New York’s grid is operated separately, but the state utilities regulator has acknowledged the ruling as it debates how to integrate clean-power mandates into wholesale power markets. Under governor Andrew Cuomo, New York passed a law requiring utilities to meet at least 70 per cent of their demand from renewables by 2030.

A consultant’s report prepared for New York state last month said the MOPR rule had elevated concerns about the future of clean-energy resources, declaring that imposing a price floor on their capacity bids was “grounded in flawed economic logic”, failing to address the environmental costs of generators that emit greenhouse gases.

The New York State Independent System Operator, PJM’s counterpart, has urged the state government not to back out of the capacity market, arguing that a clean-power agenda and competitive wholesale electricity markets “should not be seen as ‘either/or’ propositions”.

PJM’s independent market monitor has warned that abandoning the PJM capacity market was likely to raise costs for electricity customers in New Jersey and Maryland under most scenarios.

However, a separate analysis by Grid Strategies, a consultancy that supports clean-energy policies, said it would be difficult to predict the cost to consumers. Under the new Ferc order, “costs will grow over time as the amount of state-supported resources that are effectively blocked from selling in the PJM capacity market increases”, the group wrote.