Delaware Governor John Carney and four other Democratic governors are pushing for changes at PJM, a regional power grid operator, after its recent auction pointed to sharp increases in electricity costs.
But David Stevenson, director of the Center for Energy & Environment at the Newark-based Caesar Rodney Institute, sees three general problems with the governors’ letter.
Delaware’s Carney joined Pennsylvania’s Josh Shapiro, New Jersey’s Phil Murphy, Maryland’s Wes Moore and Illinois’s J.B. Pritzker in lamenting the results of the July auction that yielded clearing prices exceeding the previous auction’s by nearly tenfold. The upshot for consumers, they wrote, would be a $14.7 billion cost burden in the 2025/26 delivery year.
Is PJM putting consumers at risk of overpaying?
PJM runs auctions where power companies compete to promise future electricity supply. These auctions help ensure there will be enough power available when needed, and power companies get paid to keep their plants ready to generate electricity.
“Urgent action is needed to prevent customers from paying billions more than is necessary to support the development of needed capacity, and to reform the interconnection queue so developers can promptly respond to prices by providing new supply,” the governors wrote to the Audubon, Pennsylvania-based grid operator. “We expect PJM to address these issues on an expedited basis, after which we request that the PJM Board hold a special session to address our longer-term concerns.”
PJM oversees electricity delivery to the businesses and residences of roughly 65 million individuals in 13 states. Steps the governors think the corporation could take to lower prices include decreasing the capacity price limit and shielding “intermittent generation resources” like wind and solar from “performance penalties that discourage participation.”
Could there have been a better response to PJM?
But CRI’s Stevenson pushed back on the governors’ approach.
First, he said, Carney and his colleagues are comparing the July capacity auction results to those of just one previous auction, whose consequent prices were unusually low. If auctions before that are considered, the prices that materialized from July’s auction are more typical.
Second, Stevenson added the higher cost burdens do not appear as scary when spread out over all consumers in the 13 states served by PJM and will, in any case, be offset by falling fuel costs and wholesale electricity prices.
“Basically, a residential customer may see almost no increase in their electric bill,” he told Delaware Live.
And third, he explained that higher capacity prices owe in no small part to the policies Carney and his compatriots have embraced to take advantage of non-nuclear and non-fossil-fuel energy sources. He said replacing one unit of traditional power plant capacity requires three to four times that amount in wind or solar power.
The governors themselves acknowledge that demand is expected to increase — by some accounts to record highs — next year and that supply is down. According to Stevenson, the supply shortage is simple to explain: Political leaders are pushing to replace traditional power plants with wind and solar energy. While these sources are better for the environment, they can’t generate power 24/7 since they depend on weather conditions.
“The thing I find interesting in this group of governors: They’re the reason the capacity prices are rising!” he said. “It’s their fault! They’ve come up with all those energy policies causing baseload power plants to close.”
A particularly salient example of such policies is the participation by the states represented in the letter (with the exception of Illinois for geographical reasons) in the Regional Greenhouse Gas Initiative, a cap-and-trade program to boost renewable energy use. It functions as a tax on carbon dioxide emissions.
As a result of Carney’s push for alternative energy use, Stevenson said, Delaware’s in-state electricity generation has fallen from 70 percent to 40 percent during his eight years in office.
PJM’s reaction to the governors’ letter suggests the company also views premature retirement of older, more reliable plants in favor of new alternative-energy facilities as negatively impacting supply.
“PJM has been warning for some time that policy pressure on generators to retire before their replacement is in place could result in a supply crunch,” the press office wrote in an email. “Growing demand for electricity has made that happen even faster than we feared.”
Prior to receiving the governors’ letter, the wholesaler announced it would postpone its next auction, originally scheduled for December, by six months to adjust its capacity market.
Some pro-renewable energy lawmakers, such as state Senator Stephanie Hansen (D-Middletown), who chairs the Delaware Senate Environmental and Energy Committee, say they support variety in energy production.
“There is no single energy source that is the answer for moving us away from fossil fuel energy generation,” she told Delaware Live. “Solar and wind energy are important components of our energy mix and vital to lowering our dependence on fossil fuels, but at this time, they are not capable of completely displacing fossil fuels. The point is that they need to be a growing part of our energy mix along with other energy sources.”
Through an email from a spokesperson, Carney’s office expressed his conviction that global warming necessitates a transition to renewables.
“To suggest that there are too many challenges to transition to cleaner energy sources is to ignore the real and, in some cases, devastating impacts of climate change,” the governor’s communications director Emily Hershman wrote. “The Governor knows that we need to have sustainable clean energy sources in our region, and encourages every entity involved in the planning and operation of the electric system to consider how to most effectively integrate new clean energy resources into the existing system.”
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