FERC seeks new directions at intersection of state policy, wholesale markets

Published on May 02, 2017 by Kim Riley


Warning: Undefined variable $post_id in /var/www/dailyenergyinsider.com/wp-content/themes/dei/single.php on line 31

The Federal Energy Regulatory Commission (FERC)—or what’s left of it—is at a crossroads regarding state policies and wholesale market operations.

Given there are only two FERC commissioners at the moment, there’s technically not much that can be done, however, so FERC held the Technical Conference on State Policies and Wholesale Markets Operated by ISO New England Inc., New York Independent System Operator Inc., and PJM Interconnection LLC, which began Monday and continued through Tuesday at its headquarters in Washington, D.C.

“I don’t want our successors to sit in this room in 2021 having the exact same conversation or picking up the pieces of a mess that we failed to avert,” said Cheryl LaFleur, FERC’s acting chairwoman.

The word ‘mess’ likely resonated with attendees to the two-day conference. While tasked with overseeing the nation’s energy infrastructure projects, FERC—through no fault of its own—looks as though it’s crumbling.

In addition to LaFleur’s interim position, there are three other vacancies at FERC, which normally is comprised of up to five commissioners, appointed by the president of the United States with the advice and consent of the Senate. President Donald Trump hasn’t yet named nominees to fill those open slots.
And on April 28, Commissioner Colette D. Honorable announced that she won’t seek another term and will leave FERC at the end of June when her current term expires.

Since FERC cannot take major actions because it lacks a quorum, LaFleur, Honorable and their staffers May 1 tried to garner as much information as possible to set up the next FERC and stakeholders from the electricity markets with a road map regarding certain matters affecting wholesale energy and capacity markets operated by the Eastern Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).

FERC earlier this year scheduled the technical conference after numerous industry concerns arose about state power incentives interfering with market operations.

Balancing pros, cons
The FERC commissioners said they wanted to talk about the long-term expectations around the roles of wholesale markets and state policies in the Eastern RTOs/ISOs in shaping the quantity and composition of resources needed to cost-effectively meet future reliability and operational needs.

Translation? Is there a way to weave state regulations with market functions so that market outcomes aren’t altered by “unintentional re-regulation,” as LaFleur called it, such as mandates or subsidies, which eventually could end up messing up the wholesale market model?

At one end of the spectrum, LaFleur said, state policies would be satisfied through the wholesale energy and capacity markets. At the other end of the spectrum, state policies would be achieved outside of the wholesale markets and the wholesale markets would be designed to avoid conflict with those state policies.

Between these two ends of the spectrum there are numerous alternatives, she said.

“My hope,” added Honorable, “is that we can collaboratively work through these challenging times and provide opportunities that ensure that markets operate as intended. I recognize there may not be a one-size-fits-all approach.”

Honorable also sought ideas for comprehensively supporting markets over the long term — “not just stopgaps, but efforts to plug holes.”

Market participants depend upon stable market rules when making investment decisions, Honorable said. “I worry that any solution that is short-lived will only serve to introduce more uncertainty that will unnecessarily and inevitably dampen participation.”

Both commissioners said they didn’t expect “to have fully vetted solutions.” Instead, they aimed to “develop a sound record upon which the commission can act at some future date when we get our new colleagues here to provide better guidance to stakeholders, not only in the three regions but more broadly across our national footprint,” Honorable said.

State perspectives
As part of Monday’s discussion, the commissioners told the first set of panelists—who in the morning included those representing the states followed by those representing the industry stakeholders—that they wanted to understand the interplay between state policies and the wholesale markets operated by ISO New England Inc., as well as any potential they saw for sustainable wholesale market designs that could both preserve the benefits of regional markets and respect state policies.

For instance, LaFleur asked state reps: “Do you anticipate relying on the capacity markets to attract investment in the future? Or do you see all future resources being chosen by the states to meet state goals? We can best design a solution and modify the existing resource adequacy construct if we have some sense of where you think you’re headed, not just in the short run but going forward.”

Angela O’Connor, chairwoman of the Massachusetts Department of Public Utilities, and Robert Scott, commissioner at the New Hampshire Public Utilities Commission (PUC), said they think that state policy goals can be met through the market rather than by mandate—if the markets get reorganized so that lawmakers are satisfied with the outcomes.

But can lawmakers be satisfied? Not according to Sarah Hofmann, a board member on the Vermont Public Service Board who spoke on behalf of the National Council on Electricity Policy.

“I think one of the problems … is that we cannot control what our legislators do,” Hofman said. “They are going to have policies. It doesn’t matter what anybody here or anyplace else says. They will have policies that set the stage for what the stage wants. That’s what legislators are for. So I’m not sure how that division is going to actually work in terms of kind of drawing a line.”

And in New Hampshire, what the state expects to get out of the markets is to use the benefits of competition to get the best economic results, said Robert Scott, a commissioner for the New Hampshire PUC.

“So the bottom line is I think the jury is still out on new entry and we still hope to harness the competitive market to the extent we can,” Scott said.

Industry perspectives
Next, the FERC commissioners followed up with industry stakeholders on their perspectives in ISO-NE, including what they think the tipping point is regarding when the amount of procurement coming through the states starts to make the remaining role of resource adequacy for the market more difficult.
“Our focus is really on how do we avoid the tipping point, right? If there are solutions that can accommodate or achieve state policy through the markets, perhaps the tipping point isn’t the question as much as how we address avoiding it,” said Tom Kaslow, chairman of the New England Power Pool, commonly known as NEPOOL, a voluntary association of market players from the six New England states.

While states don’t have the right to set wholesale prices, Kaslow said, states “have the inherent ability through their actions to affect them and figure out how to set that balance and to design the wholesale markets in a way that accommodates those state policies and that recognize this reality the states are going to affect.”

And though it won’t be easy, Kaslow said, “we need to have some faith that as we set up a good market design there will be more storage, more technologies that can respond to the market signals.”

Bill Murray, senior policy director for Dominion Resources, said states are looking at resource diversity—carbon and renewables—and stepping up with separate or companion climate policies, which means the industry has to think about not just the energy markets, but also carbon and renewables, as well.

“But I certainly don’t see us at any sort of tipping point,” Murray said. “If anything, quite the contrary.”

Peter Fuller, vice president of market and regulatory affairs at NRG Energy Inc., said the company thinks that the markets are fundamental and can be adapted and modified to get the states what they want and to get consumers and the nation what is needed in terms of reliable and affordable energy, while also proactively addressing any climate and other environmental goals.

“I don’t think we’re at the tipping point yet. But if we don’t move fairly quickly on this accommodate side, and move a little farther into how do we build some of those into market, and further how do we ensure that markets can actually support this kind of renewable-based future, if we don’t do all of those things, then we could very well tip over,” Fuller told FERC.

In the end, although the answers may have varied, the common theme was that cooperation is needed now because as Jeffrey Bentz, director of analysis at the New England State Committee on Electricity, said, “Sooner or later, there’s going to be a collision.”

If the markets and state policies continue on separate paths, Bentz said, eventually “the markets will unwind themselves.”

“The states aren’t interested in having markets for the sake of markets and the oversupply—you would end up with too much of an overbuild. So maybe that’s not in the next three to five years, but down the road clearly we can see that train wreck coming and probably the end of markets as we know them today,” said Bentz.