PJM market monitor intervenes in Illinois ZEC lawsuit

Louisville, Kentucky (Platts)--20 Mar 2017 511 pm EDT/2111 GMT

PJM Interconnection's independent market monitor is opposing a new Illinois law that relies on a zero emissions credit program, or ZEC, to provide ratepayer-funded subsidies to keep two money-losing Exelon nuclear plants from closing.

Monitoring Analytics LLC, in a filing late last week with the US District Court for the Northern District of Illinois, said the so-called Future Energy Jobs Act, if allowed to stand, would deal a blow to competitive markets in PJM, a Pennsylvania-based regional grid operator that includes 13 states plus the District of Columbia.

Illinois currently is split, with PJM in Chicago and northern Illinois and the Midcontinent Independent System Operator in downstate Illinois.

The Illinois General Assembly, on the final day of its 2016 legislative session in Springfield, passed the legislation, then known as Senate Bill 2814. Republican Governor Bruce Rauner signed it into law in early December.

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Several parties, including merchant generators Dynegy, NRG Energy, Calpine and Eastern Generation LLC, as well as national trade group the Electric Power Supply Association, soon filed suit against the new law, essentially claiming it violates the Commerce Clause of the US Constitution by favoring one form of generation over others.

Monitoring Analytics effectively sided with the plaintiffs. If the law is not overturned, it "would inhibit a robust and competitive market in PJM," whose 982 members had combined generating capacity of 182,449 MW as of December 31, 2016, according to the Monitoring Analytics filing.

The ZEC subsidies program, it said, originates from the fact that competitive markets result in the exit of uneconomic and uncompetitive generating units. ZEC would provide subsidies to specific generating units.

But "the ZEC program is not designed to serve the public interest," it said. "These subsidies were requested by the owners of specific uneconomic generating units ... to improve the profitability of specific generating units. These subsidies were not requested to accomplish broader social goals. Broader social goals can be met with market-based mechanisms available to all market participants on a competitive basis and without discrimination."

Chicago-based Exelon, which aggressively lobbied for last year's legislation, said it was crucial to prevent the premature shutdown, for economic reasons, of its Quad Cities and Clinton nuclear plants, totaling about 3,000 MW, over the next two years.

Exelon was involved in a similar successful effort in New York, where it operates the 1,900-MW Nine Mile Point and 614-MW R.E. Ginna nuclear plants and soon will acquire the 838-MW James A. FitzPatrick nuclear plant from Entergy.

The New York Public Service Commission last summer enacted a Clean Energy Standard that, in part, relies on a ZEC system to generate additional revenue for the Exelon plants. That decision also is being challenged in a New York federal court by most of the same plaintiffs in the Illinois litigation.

If the Illinois law stays on the books unchanged, Monitoring Analytics maintained it would be "required to expend significant resources to attempt to mitigate the harm inflicted on the PJM market design."

The Federal Energy Regulatory Commission regulates PJM under an approach that relies on regulation through competition "to ensure the lowest possible electricity prices for consumers," Monitoring Analytics said. "Competition means that decisions about whether to enter the market, to exit the market and to remain in the market are made by suppliers based on market fundamentals. Suppliers must believe that the market fundamentals will determine the success or failure of their investment or they will not invest, the market will not sustain adequate supply and the federal regulatory approach will fail."

The Illinois ZEC program is "incompatible with ... PJM market design, threatens the foundations of the PJM market and interferes with the federal regulatory scheme," it said.

--Bob Matyi,

--Edited by Valarie Jackson,

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