Friction rises between state energy goals and power markets
Power markets have changed, but the rules governing them have not — at least not at the pace of technology, price and political preferences.
That was evident as some 500 state regulators, industry representatives and federal officials gathered in Washington yesterday to discuss the future of three competitive wholesale markets that serve 87 million Americans in the eastern United States. Their central question: Can markets continue to operate effectively as states make decisions independent of them?
Early indications suggest all parties have their work cut out for them. The reason is simple to identify, if not solve. The competitive wholesale markets designed in the 1990s didn’t bank on low natural gas prices brought by the shale revolution or increasingly competitive renewables and a concerted push to cut carbon emissions.
“We need to be thinking about that world where the grid is powered primarily by renewables,” said Peter Fuller, vice president of market and regulatory affairs for NRG Energy Inc., a utility. “We need to be thinking about that as a different world from the fossil fuel input, heat rate world that we’ve dealt with for the last century or so. We need to think about what new products are necessary, how does that work in a market construct.”
But what that market should look like is a matter of great debate. Some argue that the markets have not delivered the renewables needed to cut carbon emissions. Others maintain that state assistance is needed to stem the closure of nuclear and coal facilities, which have long underpinned the grid. And still others say state action threatens to saddle customers with new costs and dampen investors’ enthusiasm for financing new power plants.
The issues vary by region. In climate-conscious New England, state lawmakers have ordered up a sizable helping of wind and hydro power to slash the region’s emissions and replace its aging coal and nuclear facilities.
In New York and Illinois, state officials have plans to aid struggling nuclear facilities in the name of preserving large baseload providers that crank out large amounts of power, without the climate-warming emissions. Maryland, Pennsylvania and New Jersey could follow suit. So, too, could Ohio, where lawmakers are considering a proposal to support two nuclear facilities and talked about adding huffing and puffing coal plants to the dole.
Each creates its own set of problems for the three independent system operators (ISOs) that work in those regions. ISO New England, which serves 7.1 million people in six Northeastern states, is particularly concerned about large mandated renewable purchases in Connecticut, Massachusetts and Rhode Island (Energywire, Oct. 27, 2016).
Those purchases could depress power prices, thus dampening enthusiasm for investment in new generation needed to ensure reliability, the grid operator worries. It has also expressed concerns about customers paying for resources twice: first in capacity auctions to secure future generation, and later to support state renewable mandates. The ISO has proposed a fix, essentially allowing operators to transfer future generation obligations from legacy plants to renewables (Energywire, April 19).
Distorting the market
Many presenters yesterday spoke of “marrying” state environmental policies with markets’ responsibility for ensuring reliability and affordability. Some called for new market designs to account for environmental considerations. Today, ISO New England has a mandate to ensure reliability and cost-effective power, said Brookfield Renewable Energy Group’s director of regulatory affairs, Aleksandar Mitreski.
“This is why we’re here. That third constraint in the ISO’s models is not there,” Mitreski said. “How do we get to there, where the ISOs do factor in some of these states’ policies. I think the ISOs have the tools, the ability, the expertise to design that market.”
Others offered cautious support for the idea. A technologically agnostic market mechanism that accounted for lowering carbon emissions could work, argued David Patton, president of Potomac Economics. He pointed to the Regional Greenhouse Gas Initiative, a regional cap-and-trade pact encompassing nine Northeast states, saying, “It works great.”
“On the other hand, if your objective is technology-specific, or unit-specific, that is not something I can imagine achieving in the market,” Patton said.
But the limits of RGGI were also apparent. There was widespread agreement that the cap-and-trade compact could produce the desired emissions reductions. Garnering political support from nine states with competing interests and perspectives is harder. All six New England states are RGGI members, but some have more ambitious goals than others. Connecticut, Massachusetts and Rhode Island all have mandates to cut carbon emissions 80 percent by midcentury. Some of their neighbors say they are more concerned about costs and reliability than carbon.
“What I want is not to pay for Massachusetts and Connecticut policies,” said Robert Scott, a member of the New Hampshire Public Utilities Commission. Later, he added, “Their states’ policy, they drive most of the load in New England; they distort the market. Those distortions have some impact to the ratepayers in my state.”
“But you also benefit from some of the things we do from flattening that load curve, so those cut both ways,” replied Angela O’Connor, who chairs the Massachusetts Department of Public Utilities, to laughter in the room.
“And our improvements to reliability, as well,” chimed in Robert Klee, a commissioner for the Connecticut Department of Energy and Environmental Protection.
All three hastened to say they prefer regional collaboration to a federally imposed solution.
‘Listen to … customers’
Outside New England, the debate largely concerns the future of subsidies for nuclear and, to a lesser extent, coal facilities.
In New York, regulators intervened last year to provide subsidies to three struggling nuclear facilities. New York officials yesterday framed the support as something of a placeholder, preserving a valuable source of low-emission power until a wider market fix could be agreed upon.
