On March 16, 2017, Monitoring Analytics, LLC, acting in its role as the Independent Market Monitor for PJM, moved to intervene as plaintiff in an ongoing case involving a challenge to the Illinois Power Agency Act and, in particular, its Zero Emissions Credit (ZEC) program. New York also established a similar program last year. Both ZEC programs aim to compensate generators for the environmental attributes of nuclear energy, which are not accounted for in FERC-regulated markets. The ZEC provide generators with revenue that supplements energy and capacity sales. Both programs also claim to prevent large customer rate increases should nuclear plants in those states be closed.
According to Monitoring Analytics’ motion, intervention to oppose the Illinois Power Agency Act was necessary to “to promote and protect the competitive wholesale electricity markets and to avoid the burden that would be imposed on its resources in an effort to avert failure of the market.” But this position presumes that the market, as it presently exists, is competitive. It isn’t. As Monitoring Analytics notes in its 2015 State of the Market Report, production tax credits and renewable energy credits accounted for 47 percent of the total net revenue of a wind installation and 78 percent of the total net revenue of a solar installation. And its 2016 State of the Market Report acknowledges that Renewable Energy Certificates (RECs), federal investment tax credits, and federal production tax credits already provide out of market payments to qualifying resources, primarily wind and solar, which create an incentive to generate MWh until the negative marginal price is equal to marginal cost minus the credit received for each MWh. These revenue streams therefore already affect the offer and operational behavior of these resources and thus the market prices and mix of clearing resources.
Set against this background, Monitoring Analytics’ claim that it now must step in to protect “competitive” markets from ZECs seems inconsistent with its response to RECs and tax credits. Monitoring Analytics notes that it has actively participated in litigation involving “owners of financially distressed units seeking subsidies to forestall retirement” and “subsidies to encourage new entry under various pretexts.” But, the former is a reference to its opposition to the New York ZEC program and the latter is its opposition to a Maryland program that created incentives for development of new natural gas units. Conspicuously absent is initiation of or participation in litigation opposing the many state programs promoting renewable generation—programs upon which the Illinois and New York ZEC programs were based.
At this stage, it’s too late for the market monitor to stake out a “pure” principled position on competition. Claiming that significant resources would have to be expended to mitigate the harm inflicted on the PJM market design from ZEC programs simply ignores the circumstances that were the impetus for ZECs in the first place: federal policies and mandates subsidizing wind and solar generation and market prices that reflect only short-term marginal costs and that provide no compensation for reliability, the ability to operate at all hours, or the lack of carbon emissions. ZEC programs aim to mitigate the market-distorting effects of subsidized, non-competitive generation resources, such as solar and wind, as well as the market’s failure to properly account for externalities like carbon pollution. The playing field for energy is already tilted toward renewables and natural gas. ZECs just partially restore the competitive balance—an objective the market monitor ought to support.