Why Exelon Is Lobbying Against The Production Tax Credit
Richard Caperton, Guest Blogger and Adam James, Guest Blogger on May 21, 2013 at 11:06 am
The Production Tax Credit — the key federal incentive for wind power — is a success story. Since the PTC was first enacted in 1992, the cost of wind power has fallen 90 percent, 75,000 people now work in the wind industry, and wind power is booming.
Yet, some people still think the PTC should be eliminated. Most interestingly, Exelon — the large Midwestern utility and power plant operator — has made ending the PTC its number one lobbying priority, claiming that the credit distorts markets. This would be scary. Fortunately, it’s not true.
The truth is that Exelon hopes to slow or halt expansion of wind power projects that can affect the bottom line of their nuclear power plants in the Midwest, and to achieve that objective they’re blaming wind and the PTC for market phenomena like negative pricing that are almost always caused by inflexible generation technology and transmission constraints.
This post will summarize Exelon’s position on the PTC, show where it falls short, and then point out that Exelon is more concerned about competition from wind power, in general, than the Production Tax Credit.
Why does Exelon say the PTC is distortionary?
Exelon’s argument hinges on two fundamental ideas. First, that the PTC causes negative prices; and second, that negative prices are bad for wholesale electricity markets.
Digging into this argument requires a little knowledge of how power markets work. In much of the country — including where Exelon’s nuclear plants are located — power is sold in competitive markets, at a “clearing price” set by an auction process. In general, the clearing price is set by the most expensive marginal resource needed to meet demand at a given time. This price is then given to all the generators providing electricity at that time.