Issue No. 2

The Electricity Reality Report provides readers like you with news and timely analysis on policies, markets, and technology trends that affect our nation’s ability to power American homes and businesses with reliable low cost energy.

• Nine former commissioners, including chairs from Republican and Democratic administrations, ask FERC to expand organized regional wholesale power markets.
• Renewable buyers group advocates RTOs and ISOs to expand green energy footprint.
• Nevada and Colorado pass bills requiring states join RTOs within 8 years.
• Southeast monopolies look to ‘ambitious market reform.’
• Debate rages in Virginia over a law seen as aiding monopolies.
• Texas weather once again hits consumers of electricity.

Former EIA Administrator says competition boosts affordability and environment.

In an unusual show of bipartisan unity, nine former commissioners of the Federal Energy Regulatory Commission (FERC), including four who served as chair, called for expanding organized regional wholesale power markets in order “to prepare the grid for a rapid evolution toward a low-carbon future.”

Emphasizing that they were “united in [this] strongly held view,” the ex-commissioners urged FERC “to finish the job of setting up organized wholesale power markets and ensure that they flourish in all regions of the country.”

In their June 2 letter to current FERC commissioners, the nine wrote that these organized markets –RTOs (regional transmission organizations) and ISOs (independent system operators) – “are more essential than ever” and “provide compelling platforms for renewable energy development and are achieving considerable consumer benefit.” What the commissioners advocate, as Michael Yoder of RTO Insider wrote, is “to create RTOs and ISOs in areas not currently supported by organized power markets.”

The signers include Elizabeth Anne Moler and James J. Hoecker, who served as chairs under President Bill Clinton; Pat Wood III, who was chair under George W. Bush; and Jon Wellinghoff, chair under Barack Obama. The five other former commissioners were Branko Teszic, who served from 1990 to 1993; William L. Massey, 1993-2003; Nora Mead Brownwell, 2001-06; John R. Norris, 2010-14; Robert F. Powelson, 2017-18. Their combined service on FERC totals 51 years.

The letter stressed the importance of RTOs and ISOs to broader distribution of clean energy:

“As the pace of decarbonizing the grid accelerates, we are convinced that the time for organized market expansion is now. Hence, we…urge the Commission to use the broad authorities and tools available under the Federal Power Act to move toward well-structured organized power in all regions of the country.”

RTOs and ISOs were developed in the 1990s, and they manage about 60% of the U.S. power supply, according to the U.S. Energy Information Administration (EIA). Major gaps are in the Southeast, Plains, and West (with the exception of California). Entire states such as Florida, Georgia, Colorado, and Washington are not covered.

The former commissioners argue that, “There is no longer any doubt that these markets are reliable, resilient and highly attractive to innovative new technologies and clean energy resources.”

They also stress that these markets are built to facilitate this exact trend:

“Organized wholesale markets are defined by a least-cost, customer-centric transition to a low carbon or zero-carbon grid: large footprints able to handle the variability of renewable resources, level playing fields for all providers, non-discriminatory grid access, robust markets and efficient congestion management.” They added that “more than 80% of renewable generation has been deployed in organized market regions and emissions are falling faster in such regions.”

Miranda Ballentine, the CEO of the Renewable Energy Buyers Alliance (REBA) praised the letter in a blog on the REBA website, writing “we now have unequivocal alignment that the expansion of organized regional wholesale power markets will benefit customers and accelerate clean energy deployment.” 

Ballentine referred to a May 2020 report by the REBA Institute and the Brattle Group, a consulting firm. That report looked at ways to increase access to renewable energy by commercial and industrial (C&I) customers, which collectively use over half the electricity generated in the country. Allowing these C&I customers to “choose their suppliers provides opportunities to expand access to renewables – up to 100% of C&I needs. This option can lower the cost of renewable energy procurement by up to 11%.”

The REBA-Brattle report pointed out that “in regions without centrally organized wholesale markets operated by regional transmission operators (RTOs), customers are limited to using the incumbent utilities’ offerings such as ‘green tariffs’ to buy renewable energy.” The offerings, said the report, are limited in scope and may include transaction costs that deter buyers. By contrast, in regions that do have organized markets, “developers can build new renewable resources that connect with the wholesale power grid and sell renewable power directly to the wholesale markets.” This validation underscores the point that competitive markets – not monopoly utilities – are the more effective facilitators of deploying renewables and reducing carbon emissions.

In their letter, the nine commissioners highlighted “ongoing initiatives in the West to expand market platforms and growing interest in the Southeast for ambitious market reform.”

In the West, two legislatures recently took strong action, passing bills requiring that their states join RTOs by 2030.

Nevada’s state assembly on May 31 overwhelmingly approved the RTO bill, which was signed into law by Democratic Gov. Steve Sisolak June 10. The new law also includes a “Greenlink Nevada” upgrade for new 525-kilovolt transmission lines, and it will boost spending on electric vehicle infrastructure. 

Meanwhile, a bill passed in Colorado on June 3, Senate Bill 72,  creates an independent state electric transmission authority that will take steps, such as operating transmission and storage facilities that will allow Colorado to participate in regional markets. The bill gives the state about eight years to determine which RTO it will join.

At a FERC technical conference on June 24, Richard Glick, the FERC chairman, joined what RTO Insider called “the chorus of those who have been calling for the West to form one or more RTOs soon.” Glick cited “last year’s rolling blackouts in California, extreme heat waves in the West, and strained resources across the region.” An article in Utility Dive quoted Emilie Olson, policy principal at Advanced Energy Economy, as saying that the decisions by the two states, which await governors’ signatures, could be “putting a finger on the scale,” encouraging other Western states, including Oregon, Washington, Idaho, and Montana also to join RTOs soon.”Being a laggard,” Olson said, “does potentially put your state at risk of missing the broader opportunity.”

The commissioners’ letter also noted “growing interest in the Southeast for more ambitious market reform.” That was an evident reference to a decision in February by 14 utilities and cooperatives, including giants Southern Co., Duke Energy, and the Tennessee Valley Authority, to form the Southeast Energy Exchange Market (SEEM) to try to reduce “friction” in bilateral trading.

According to Southern, the SEEM “will allow for shorter-term, intra-hour, transactions and greater flexibility through an automated matching system.” And, says an article on S&P Global Platts, “by providing a platform that uses the information input by buyers and sellers, the SEEM will expand the universe of potential trading matchups and automatically find counterparties.” The members of the new group are quick to say that the SEEM is not an RTO. As the article put it: “Unlike more sophisticated, centralized energy markets run by regional transmission organizations and independent system operators, the proposed Southeast energy exchange market is aimed at enhancing the existing bilateral market in the Southeast by making it more efficient.”

In a blistering opinion piece in the Roanoke Times on June 6, Virginia State Sen. David Suetterlein criticized Dominion Energy and other regional monopoly electricity providers in the state as well as their political supporters. For years, he wrote, “the electric monopolies have used the legislative process to do an outstanding job of maximizing shareholder profit while the General Assembly and Governor’s office have completely failed to protect working Virginians who pay electric bills.”

Suetterlein added, “In 2020, Northam signed the monopoly-written Virginia Clean Economy Act [VCEA] that increased your electric rates…for years to come under the guise of green energy with provisions like $300 million in wind energy costs to power only 3,000 homes.”

In the piece, Suetterlein, a lawmaker whose district is in the southwestern part of the state, wrote that federal data show that “Virginia customers pay more for electricity than customers in neighboring West Virginia, Kentucky and North Carolina” and that it is time to “reevaluate electric competition” – that is, to increase it.

He added, “We allow Virginians to choose which gas station is best for them, their wireless phone carrier…, but the electric monopolies would have you believe that Virginians are not intellectually equipped to understand what’s best for their budget and green energy preferences when it comes to electric rates.”

A week later, William Murray, senior vice president for corporate affairs and communications of Dominion responded in the Roanoke paper by pointing to the “human tragedy which unfolded in Texas this past winter [as] a warning we should not ignore” as well as to “the ongoing deregulation disaster elsewhere in the country.”

Murray added, referring to the VCEA, signed in April 2020, “Thankfully, policy makers have chosen to keep Virginia’s current regulatory structure in place.” He praised the legislation for its promotion of clean energy and insistence on reliability.

But critics, citing the Virginia State Corporation Commission, point out that the law will force residential customers to pay $807 more per year by 2030 for their electricity and that it offered the utilities no incentive to prioritize low electricity prices for consumers. Nor did it do much to expand the use of green energy.

Dominion and other monopoly energy companies continue to use the term “deregulation” to refer to the system of organized regional wholesale power markets that provide energy for more than half the United States. Dominion is wrong the fact that there is no “deregulation” taking place in this market. All power generators and electric utilities, of course, are subject to state and federal regulation. (As one example, the North American Electric Reliability Corp., overseen by the Federal Energy Regulatory Commission, sets reliability standards for every power generator.)

Murray also raises the specter of Texas, which, in mid-February, suffered a deep freeze and could not produce enough electricity to meet demand. More than 100 people died, and property damage amounted to tens of billions of dollars.

We discussed Texas at length in Electric Reality Report No. 1. A major problem is that its utilities, unlike those that participate in conventional RTOs and ISOs, are, for the most part, isolated from multi-state grids. As we wrote: In fact, Texas is an example of what can go wrong when an unprecedented weather event occurs in a region that has purposely limited its geographic sources of fuel. Texas is isolated. As Devin Hartman and Beth Garzaof the R Street Institute, a Washington think tank, wrote recently: “A key lesson in Texas is that it’s not enough of a market.”

Weather conditions in Texas are certainly troubling. On June 14, the Electric Reliability Council of Texas (ERCOT) asked residents to cut their electricity use “as much as possible” for the rest of the week as several days of heat over 90 degrees F. and generation outages strained the state-limited grid. ERCOT said that 12,000 megawatts of generation were offline for repairs, or “enough to power 2.4 million homes on a hot summer day,” said a report in the Texas Tribune.

Reuters describes the problem succinctly:

“Texas is the only state in the continental United States with an independent and isolated grid, which allows it to avoid federal regulation but limits its ability to draw emergency power from other grids. ERCOT also operates the only major U.S. grid that does not have a capacity market — a system that provides payments to operators to be on standby to supply power during severe weather events.”

To be fair, Texas is not the only state with electricity problems triggered by the weather. California’s ISO on June 17 asked residents to reduce their energy use in the face of triple-digit heat in parts of the state. California, however, benefits from access to electricity from Pacific Northwest, which tends to have less dire heat waves. But back to Texas. According to the Tribune, “Texans can reduce electricity use by setting the thermostat to 78 degrees or higher; turning off lights and pool pumps; avoiding use of large appliances such as ovens, washing machines and dryers; and turning off or unplugging unused electric appliances.” None of this is a pleasing prospect. With outages already, what will happen in July and August, where in both Dallas and Austin, high temperatures are 96 degrees, or four degrees hotter than in June?

Distortions about Texas were among the subjects addressed in a commentary piece on Power Magazine’s blog, which covers the global energy industry, by Guy Caruso, the former administrator of the EIA. Caruso noted that in the “aftermath of the Texas disaster… some opted to advance the agenda of monopoly power providers by claiming power outages were the product of market failures. Nothing could be further from the truth.” He added:

“Chief among the voices decrying the flaws of customer choice was Power for Tomorrow, a monopoly utility-supported group that opposes a competitive energy market. Using Texas as an example, the group has advocated against market competition in Virginia, spreading the false narrative that customer choice in Virginia will result in Texas-like grid failures. Despite their attempts to distort reality, Power for Tomorrow and others like them are simply wrong, espousing false information rather than admitting the facts.”

Caruso knows facts. Not only did he head the federal government’s energy data agency, he previously served as an international energy economist in the Office of Economic Research of the Central Intelligence Agency. He is now a senior adviser in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington.

Caruso writes, “Federal data show that from 1997 to 2017, competitive markets not only caught up to monopoly models in terms of affordability, but actually saw smaller rate increases for consumers. Those in the PJM Interconnection region [an RTO that serves all or part of 13 states plus the District of Columbia], for example, are now saving as much as $4 billion each year because of market competition. Wholesale energy prices in the competitive New York Independent System Operator (NYISO) market reached record lows in 2019.” He adds, “Competition helps reliability and emissions reductions, too, as competition fosters innovation and drives investment to where it’s needed most.” He writes that “carbon emissions are falling nationwide as competition has catalyzed a switch from coal to natural gas for power generation causing emissions in the power sector to fall by 33% since their peak in 2007.” Monopoly utilities cannot point to any superior data that they somehow have the comparative advantage with these emissions reductions.

A project of the Pacific Research Institute, the Electricity Reality Report provides news and analysis on policies, markets, and technology trends that affect our nation’s ability to power American homes and businesses with reliable low cost energy. For more information, visit www.energyrealityreport.org/