The power distribution network that serves the southern tier of the Great Lakes region (Washington DC to Chicago) is currently at risk of being undermined by legislators in Springfield.
PJM Interconnection is one of several regional transmission organizations (RTO) in the United States that buys power and sells it to consumers. Like all distributors, their retail prices are heavily influenced by the costs of units charged by the companies who generate the power, for example, Exelon in Illinois. But unlike the relatively straightforward cost for PJM to distribute power, there are more than a few factors that affect the price of generating power.
Some of those variables affecting the cost of power generation include the market forces for cheap, legacy modes (gas and coal), clean but expensive modes (nuclear) and clean and new modes (wind and solar) as well as federal and state regulatory considerations. Most importantly, subsidies paid by states to power generation companies have played a large role in distorting these market dynamics.
Late last year, the Federal Energy Regulatory Commission (FERC) issued a ruling that PJM Interconnection should find a way to address these distortions from state-subsidized resources and “expand its current Minimum Offer Price Rule (MOPR)… with certain exemptions.” This MOPR rule levels the playing field for all power generation resources by enacting a screening process that prevents companies from using state subsidies to price their product below the cost of generation.
States usually initiate such subsidies to influence the cost of power and incentivize the further development of a resource. Another reason to provide subsidies would be to prop-up failing or politically favored power generation businesses. Exelon offers a prime example of this in Illinois, as the company is one of the largest givers to local governments and to reelection campaigns in the state.
Exelon’s aggressive lobbying forced Gov. J.B. Pritzker to foreswear lobbying reform would be a cornerstone of his administration in his State of the State address this year.
Illinois’ newest legislative initiative for energy, the Clean Energy Jobs Act (CEJA), is the latest target of Exelon’s lobbying for more favorable legislation. The concerns surrounding this bill run so deep that Gov. Pritzker affirmatively stated he would not “sign an energy bill written by the utility companies.”
CEJA is a subsidy rich giveaway to Exelon under the guise of providing Zero Emission Credits (ZEC).
Hiding behind the “holy cow” of Global Climate Change, Exelon will receive millions annually in these emission credits for producing the same energy that they always have. These credits to Exelon will not reward a change in behavior or incentivize new initiatives to change the face of energy production; it is a dressed-up subsidy and Springfield is only too happy to steal from the taxpayers and give to their pals at Exelon.
These taxpayer funded subsidies distort the energy market and force the consumer to pay on both ends of Exelon’s energy sales. They reduce the cost of power production in the form of annual subsidies and then ultimately pay a normal rate for the energy that they are already subsidizing. Exelon would further entrench its near monopoly power if Illinois reacts to the MOPR by opting out of the market and exercising what is known as the fixed resource requirement for its electricity supply; the result would deprive the state’s electricity customers from receiving low cost rates among competitors.
And, so much so, that FERC granted PJM Interconnection the work around from requiring MOPR. This will allow PJM Interconnection to correct for the product of the subsidy-laden generating companies like Exelon while not completely distorting the broader energy market.
By taking these actions, FERC has allowed a partial restoration of the balance in competitive power generation markets and has ensured that consumers and taxpayers will continue to benefit from the utility prices that come from healthy, robust markets for years to come. Legislators in Springfield could do their part and kill the CEJA bill as well.
• Michael Patrick Flanagan is a former U.S. Congressman who represented Illinois’ 5 th District.