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Richard C. “Rip” Sullivan Jr. column: Let competition call the shots in energy markets
Virginia’s direction

Richard C. “Rip” Sullivan Jr. column: Let competition call the shots in energy markets

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The Virginia Clean Economy Act (VCEA) became law just over two months ago. It marks a historic, transformative shift to a focus on clean energy for the commonwealth. Virginia is poised to become a leader in solar, wind and energy efficiency.

But recent action by federal regulators — pushed by gas power plant developers — threatens our ability to forge this path.

The Federal Energy Regulatory Commission (FERC) is an independent agency that regulates the interstate transmission of electricity, natural gas and oil. Under FERC’s Minimum Offer Price Rule (MOPR), power sources that Virginia is prioritizing for our economy and energy mix will suddenly be forced to bid into PJM Interconnection’s electricity capacity market, which stretches from Virginia to New Jersey and west to Illinois, at artificially inflated prices that could exclude them from the market altogether.

The MOPR’s penalties are aimed mostly at wind and solar — unsurprising given the rule’s champions in the gas power plant industry.

The way it’s supposed to work is basic free market competition: Generators that can bid their power at the lowest price get to meet our energy needs first, before those that are more expensive, keeping costs down for bill payers. FERC has upset the apple cart with a new rule by reaching its hand into the market and putting its thumb on the scale.

Consider offshore wind. Depending upon who has the offshore lease, the VCEA encourages several different wind projects developed by both independent producers and utility developers.

One of the first offshore wind projects will pave the way for an eventual 2,600 megawatt project that will create thousands of Virginia jobs and generate millions in revenue and site updates at the Portsmouth Marine Terminal.

Under the FERC order, offshore wind projects would have to bid into PJM’s capacity market at an artificially inflated price more than 20 times higher than the maximum price accepted in the most recent market.

That penalty will almost certainly knock these projects out of the PJM market, leave them without those market revenues for development, and force more costs on consumers stuck paying for duplicative capacity in a less competitive PJM market.

Estimates for the full PJM region show the MOPR could hike costs on consumers by $9.6 billion to $24 billion through 2030. This is what happens when FERC does not let competition call the shots in the PJM market. Just as Virginia is poised to head in a new energy direction, FERC imposes rules that undermine our effort.

There are possible workarounds to protect Virginia bill payers and our energy plans, and this is where leadership will be needed from the State Corporation Commission to study the options and chart the best course. One option no one is keen on is the possibility of fully handling the commonwealth’s capacity needs outside of PJM’s wholesale market.

Leaving competitive markets is not the right course, and it would be a shame if it came to that because of anti-competitive intervention by federal regulators. PJM and FERC should open their eyes to where Virginia and the nation is heading on energy — capitalizing more and more on our wind and solar resources — and ensuring the regional grid and power markets facilitate rather than obstruct our path.

Del. Richard C. “Rip” Sullivan Jr., D-Fairfax, represents the 48th District and patroned the Virginia Clean Economy Act in the House of Delegates. Contact him at: Rip@RipSullivan.com

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