Practical Realities of Today’s Grid VS Assumptions Driving Market Design 20 Years Ago
If there is one thing that clean energy advocates should desire, it is a low-carbon energy transition that works for consumers. New energy resources must be brought online affordably and reliably, or Americans will reject the transition outright. That’s where a recent op-ed by former FERC Chairmen Jon Wellinghoff and Pat Wood misses the mark. Their piece, “Competitive power markets are cleaner, cheaper and safer” advocates for policies that are not working in practice, are driving up customer utility bills, and are threatening grid reliability.
What seems to have upset the erstwhile regulators is that current officials, like FERC Commissioner Mark Christie, have begun asking whether the practical realities of today’s grid are undermining assumptions that drove wholesale market design 20 years ago. While Mr. Wellinghoff and Mr. Wood call such questions “alarming,”, these are exactly the sort of questions conscientious regulators should ask. More alarming would be if Commissioners were not engaged in serious inquiry.
By habit, Mr. Wellinghoff and Mr. Wood take a few obligatory shots at traditionally regulated regions of the country. But this merely serves to distract from the significant challenges deregulated wholesale electricity markets are facing today. Commissioner Christie has posed serious questions that deserve a more thoughtful response than recitations of talking points from 1990’s era deregulation debates.
The op-ed asserts that today’s wholesale power markets drive cleaner resources. To the contrary, the primary drivers of clean energy investments are, first and foremost, government policies that exist in spite of markets; and second, natural geographical factors that are unrelated to wholesale market structures.
One need look no further than the nation’s largest wholesale market, PJM. Has the PJM market ushered in significantly more wind energy than other regions? Clearly not. PJM, sitting astride the prolific Marcellus shale region, has mostly added new natural gas assets, and projected offshore wind development in the Mid-Atlantic is almost entirely a function of government dictates. None of this is a surprise. Windy areas of the country have built more wind generation, and sunny areas have more solar arrays. In places like Texas, it is not “competition”” that drove renewable deployment, it was a cocktail of favorable wind and solar profile, federal subsidies and the state legislature jump-starting renewables through the decision to mandate and socialize billions of dollars in transmission upgrades. Meanwhile, the nation’s largest on-demand carbon-free resource, nuclear, tends to exist where regulatory and public policies support those units, irrespective of the existence of an organized market.
Since any clear-eyed assessment will conclude that it is government policy – not deregulated markets – that are driving investment decisions – the question must become: how do we bring these clean energy investments online most affordably and reliably? Here the markets are failing, and Texas is Exhibit Number One.
In recent years, Texas has careened from reliability crisis to crisis, all while wholesale prices ping-pong erratically. The most recent revelation comes from the ERCOT Independent Market Monitor, who reports that Texans will have paid more than $8 billion in charges in just a three-month period for artificial shortages the grid operator created as a means of shoveling more money to deregulated merchant power generators. Bloomberg quotes Mr. Wood as saying that even this windfall may not be enough to bring needed reliability resources to the market. And as the New York Times reports, consumer advocates are calling this all “a huge transfer of wealth.”
Given this chaos in Texas, you should get your head checked if you think policymakers in other regions of the country are going to adopt that model. As for the other idea floated by Mr. Wellinghoff and Mr. Wood, a “price on carbon,” it is a frequent suggestion, though a Quixotic one, given the politics of the issue. While it is a theoretically straight-forward way to price externalities into the markets, it is no closer to adoption than it was two decades ago. Furthermore, alone it would not repeal all the other market distorting public policies. Rather, in future years, state leaders are more likely to look to planned, regulated utilities – whether inside or outside an organized market – to achieve their clean energy goals affordably and reliably. While Mr. Wellinghoff and Mr. Wood may continue to proselytize their preferred, though struggling, market model; it is properly regulated utilities that will be the ones most likely to plan, finance and construct new energy resources in a way that consumers and voters will accept. No amount of glossing over the problems of our power markets will change that fact.