New Jersey Governor Phil Murphy recently unveiled the final version of his state’s Energy Master Plan, a sweeping document aimed at fighting climate change and reducing New Jersey’s carbon footprint, including transitioning to 100 percent clean energy by 2050. Other states, notably Illinois, New York, Connecticut, and Ohio, are undertaking similar initiatives, subsidizing a host of energy sources in what planners see as an energy revolution of sorts.
But what sounds good isn’t always smart public policy. By picking the winners and losers, the authors of the energy revolution don’t just cost the public billions in subsidies; they’re also distorting the marketplace and effectively crowding out power sources that remain vitally important to both energy reliability and climate change. That’s why a new measure proposed by the Federal Energy Regulatory Commission (FERC), one that seeks to level the playing field for electricity markets, is such a smart move for power customers.
To see the extent of the problem, look no further than what is happening in three states within PJM, the nation’s largest coordinator of electricity generation and transmission. In Illinois, lawmakers have saddled the public with $235 million in subsidies for nuclear plants, using public support to keep struggling nuclear plants running.
That’s just one part of energy measures that will cost Illinois customers more than $400 million per year. In Ohio, taxpayers are gearing up to pay $1.1 billion in subsidies to save failing nuclear and another $20 million per year for six utility-scale solar projects. In New Jersey, on top of Governor Murphy’s recently unveiled energy plan – that will undoubtedly burden ratepayers with more fees – the state is giving Norwegian company Orsted roughly $1.6 billion in subsidies for a wind project and saddling taxpayers with $300 million in subsidies for three nuclear facilities.
Across the PJM territory, subsidies have run amok, which is precisely why FERC has stepped in to restore sensibility. FERC’s proposal, known as the Minimum Offer Price Rule (MOPR) sets a price floor so that all energy sources can compete fairly in the marketplace, a goal that is important not just for customers, but for climate change as well.
Why is a price floor so critical? Just consider the effect on natural gas. Federal data shows that carbon emissions dropped by 28 percent between 2005 and 2017, mostly due to the increased use of natural gas as coal-fired power was retired. Natural gas has helped bring U.S. greenhouse gas emissions to their lowest level since 1992. Natural gas is also absolutely critical to the expansion of renewable power sources such as wind and solar, serving as backup generation when the wind isn’t blowing or the sun isn’t shining.
However, without a level playing field, fuel sources such as natural gas can’t compete fairly. In the PJM market, for example, a market distorted by subsidies and short-sighted policies has “created an unsustainable mess” according to Todd Snitchler, president and CEO of the Electric Power Supply Association (EPSA), and former chairman of the Public Utilities Commission of Ohio.
The better solution? Let the market work, aided by price floors set by FERC that ensure reliability and uphold the integrity of the marketplace. Customers benefit from the lower prices and lower emissions brought by on-demand power sources like natural gas. At the same time, reliability is bolstered by a planned system driven by logic rather than by subsidies. Twenty years of history within PJM clearly show that competitive wholesale markets and regional coordination are the best way to lower emissions while protecting customers from higher prices and losses in power reliability.
In the end, it is always customers who end up paying for bad energy policy. Taxpayers should not be forced to foot the bill by subsidizing fuel sources such as wind and solar that evidence shows can now compete head-to-head with traditional power sources. Nor should taxpayers be asked to cough up yet more money to prop up failing nuclear plants.
FERC’s effort to create a level playing field is the right move. Everyone benefits when power sources compete fairly.
