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.
In today’s issue:
- Bipartisan infrastructure bill has $65 billion for the grid.
- What Glenn Youngkin’s victory in Virginia means for electric power in the state.
- Where the states rank in electric power competitiveness.
- Willie Phillips advances in confirmation process to be fifth FERC commissioner.
- Prioritizing reliability: the third leg of the FERC’s three-legged stool.
- Further support for an RTO in the Western United States.
- Chairman Glick wants a level playing field for RTOs and non-RTOs.
- Reactions to PRI’s new report on competition in electric power sector.
Infrastructure Bill Passes, With $65 Billion to Upgrade the Grid
Two big political events at the start of November affect electric power. On Nov. 5, the House passed the bipartisan infrastructure bill, which the Senate had approved three months earlier. The trillion-dollar bill includes $65 billion for the power grid. The money, in the words of the White House, will “upgrade our power infrastructure to deliver clean, reliable energy across the country and deploy cutting-edge energy technology to achieve a zero-emissions future. According to the Department of Energy, power outages cost the U.S. economy up to $70 billion annually.”
The bill, says the Administration, “will upgrade our power infrastructure, by building thousands of miles of new, resilient transmission lines to facilitate the expansion of renewables and clean energy, while lowering costs.”
The legislation also includes billions of dollars to help secure the power grid from threats, including from hackers and terrorists and $7.5 billion to expand the network of electric-charging stations for vehicles.
What Does Glenn Youngkin’s Election Mean forElectric Power Monopoly in Va.?
The second big political event was the victory of Republican Glenn Youngkin in the race for governor of Virginia, a state that Joe Biden carried by 10 percentage points only a year earlier. It may be too early to know how Youngkin will approach competitive energy markets in a state where electricity rates charged by monopoly providers have become a major issue. A particularly contentious matter involves State Corporation Commission (SCC) staff testimony, filed Sept. 17, that found Dominion had earned more than $1.1 billion above its state-guaranteed rate of return.
The staff discovered that Dominion earned a profit of 13.6% from 2017 to 2020, compared with a fair return on equity [ROE] of 9.2%, according to state law. But because of what the Richmond Times-Dispatch calls “several state laws friendly to the utility,” Dominion’s customers are only entitled to refund of $312 million.
Youngkin is now in a position to prevent this same situation from occurring with future overcharges. As the Fredericksburg Free-Lance Star reported, after “overcharging ratepayers far in excess of what state law allows, Dominion then had the gall to ask the SCC for an increase in its future profits, from a 9.2 percent ROE to 10.8 percent.” The SCC staff wants to reduce ROE to 8.7%, but the editorial says that the reduction – $50 million annually – is “a pittance compared to the $831 million in customer overcharges Dominion will apparently be allowed to keep.” How the Governor-elect approaches the question will be closely watched when he takes office shortly for a four-year term
Where States (Including Virginia) Rank by Competitiveness
Of relevance to this discussion: Four researchers at the Webber Energy Group of the University of Texas at Austin, led by Joshua Rhodes, Ph.D., recently issued a “State of Electric Competition” report, comparing the competitiveness of electricity systems in each of the 50 states. Virginia was ranked in a tie for 13th-worst, with a grade of D.
In addition to Virginia, states ranked in the bottom grouping were: Alaska, Alabama, Florida, Idaho, Kansas, Mississippi, Missouri, Nebraska, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee, Utah, West Virginia, and Wyoming. Notice that nearly all are in the West or South (a point we will get to later). Only four states — Connecticut, Illinois, Maine and Ohio — received an “A” grade.
In an opinion piece, Landon Stevens, director of policy and advocacy at the Conservative Energy Network (CEN), noted:
Criteria considered went beyond pure markets and also assessed how regulated states could act “more competitively” by implementing policies such as third-party managed all-source requests for proposals for new generation resources, fair distributed energy access, and making data available to be analyzed, among others.
Stevens also pointed out, “Polling by CEN has found that three quarters of Americans favor an electricity system that opens markets to more competition and consumer choice, accelerates the availability of new technology, and benefits the environment.”
Senate Committee Advances Nomination of Phillips to FERC
The nomination of Willie L. Phillips Jr. as a member of the Federal Energy Regulatory Commission (FERC) advanced unanimously from the Senate Energy and Natural Resources Committee on Nov. 2 and now awaits near-certain confirmation. Phillips, a Democrat, replaces Republican Neil Chatterjee and becomes the fifth vote in a commission divided, 3-2, in favor of Democrats.
For the past seven years, Phillips, an experienced regulatory attorney, has chaired the Public Service Commission of the District of Columbia. He also is president of the Mid-Atlantic Conference of Regulatory Utility Commissioners and was previously assistant general counsel of the North American Electric Reliability Corporation.
Phillips gives Democrats their first majority on the Commission since 2017. He proved widely acceptable to Republicans. As Sen. John Barrasso (R-Wyoming), the ranking member of the committee, said in a statement, “I believe Mr. Phillips will bring a wealth of expertise in safeguarding energy reliability and affordability to the Federal Energy Regulatory Commission.”
Phillips said during the hearing that he sees FERC as a three-legged stool, with reliability, affordability, and sustainability playing equal roles.
Prioritizing Reliability – The Third Leg of FERC’s Three-Legged Stool
In an opinion piece in RealClear Markets on Oct. 18, however, Benjamin Zycher of the American Enterprise Institute seemed to question one of the stool’s legs:
FERC has a mandate that is relatively straightforward conceptually, however complex in terms of implementation decisions. To wit: “Economically Efficient, Safe, Reliable, and Secure Energy for Consumers…at a reasonable cost through appropriate regulatory and market means, and collaborative efforts.”
In other words, there’s no mention of climate change or sustainability. Zycher continues:
That is simple and consistent: FERC is supposed to pursue the development of wholesale markets for electricity characterized by service reliability, investment and operational cost efficiency, and the appropriate allocation of such costs — long distance transmission is a good example — across regions, sectors, and consumers. Until Congress changes that central mandate, FERC commissioners are not supposed to indulge the various temptations created by interest group politics in the Beltway.
The mandate is “reliability and efficiency,” concludes Zycher. “That reliability and efficiency objective will be furthered by competitive wholesale power markets rather than by the old and outdated integrated monopoly model of electric utility organization and regulation. FERC should focus its efforts on facilitating this competitive evolution.”
We should add that competitive wholesale power markets have also proven to be the best way to distribute electricity generated by alternative sources, as a study by the Pacific Research Institute showed in September (more below).
More Support for a Western RTO
More voices are advocating for an RTO for the Western states. In an opinion piece in Utility Dive on Nov. 3, Wayne Highley, who heads one of the nation’s largest generation and transmission co-ops, wrote that “a successful transition to a clean energy future will require a greater degree of coordination than what presently exists in the Western American grid.
“For our consumers to enjoy the benefits of scale and to integrate more renewable energy into the grid, we need one or more regional transmission organizations (RTO) in the West.”
Highley is CEO of the Tri-State Generation and Transmission Association, composed of 42 electric district cooperatives and public power districts in four (yes, four) states. Highley writes:
Our member systems from Colorado, Nebraska, New Mexico and Wyoming are working together to reach a goal of 70% clean energy by 2030, but even at our size, we don’t have sufficient scale to properly integrate all those renewables. To do that, we will need the regional approach of an RTO.
He added, “Participating in a full RTO (or RTOs) in the West will help electric utilities achieve the planning and cost collaboration necessary for the transmission infrastructure needed to integrate vast new renewable resources without overbuilding or operating redundancies.”
Highley is only the latest important figure in electric power to endorse the idea of an RTO for the Western U.S., which, along with the Southeast, is one of two major areas of the United States without an RTO or ISO (Independent Systems Operator). There are currently seven RTOs, covering 60% of the U.S. population.
A market study backed by the Department of Energy found “annual benefits of up to $2 billion from a western RTO in 2030,” according to a news release in September.In our Newsletter No. 4, we stated, “momentum is building in the West to establish one or more RTOs. Public officials in Arizona, Colorado, and Nevada are all exploring the concept, and Oregon is taking major steps.”
Chairman Glick on RTOs and Equal Regulation
Speaking to a meeting of the Western Interstate Energy Board and the Committee on Regional Electric Power Cooperation, FERC Chairman Richard Glick on Oct. 20 said that many of the rules that apply to RTOs and ISOs should apply to electricity providers in the rest of the country as well. “The policy initiatives we’re aiming to achieve should be addressed both in terms of RTO and non-RTO markets,” he said. “I’m hoping that as the Commission moves forward, [we] try to even that out a little bit.”
According to an EnergyWire report, Glick continued, “In some cases, I think we give utilities an excuse not to join RTOs if they can say, ‘Well, if I join an RTO, I have to be subject to Order 2222 and 841 and all the other orders they have.’ Order 2222 refers to distributed energy resources and 842 to removing barriers to energy storage.”
Ari Peskoe, director of the Electricity Law Initiative at the Harvard Law School Environment and Energy Law Program, agreed with Glick, stating, “FERC has to move actively to regulate the utilities that are not in RTOs, in part to ensure that utilities not in RTOs will not stay out to avoid FERC rules and those already in RTOs won’t leave in order to avoid FERC rules.”
Nine former FERC commissioners, including four chairs, wrote a letter on June 2 asking FERC to require utilities to join RTOs, but, according to EnergyWire, “Glick questioned whether the independent agency has the authority to do so.”
We previously reported that Chairman Glick said back in June, “I believe there needs to be an RTO in the West. I think the time has come for it.” He added, “This commission has been very deferential and will continue to be deferential to the region. But, at the same time, I think those discussions need to move forward instead of working incrementally.”
The EnergyWire article, referring to the Oct. 20 speech, noted that Glick…
…emphasized his support for the voluntary establishment of an RTO in the West, particularly considering the fact that climate change-fueled wildfires and droughts have affected the reliability of the Western power grid. “To me, it has to develop organically. It has to develop in the region,” Glick said.
Through statements like the one at the conference, however, Glick is clearly encouraging the formation of an RTO, or several, in the West.
Reactions to the PRI Study of Competitive ElectricityMarkets Vs. Monopolies
The Pacific Research Institute (PRI), as we noted in our last newsletter, issued an important study on Sept. 28 that concluded that “states with competitive electricity markets saw cheaper energy prices, more energy infrastructure investment to improve efficiency and reliability, and greater emission reductions compared to monopoly states.” (PRI, a California-based think tank, is publisher of this newsletter.)
According to the study’s author, Wayne Winegarden, Ph.D., a senior fellow in business and economics at PRI, customers in monopoly states also “endure less reliable power systems.” He added, “Residents and businesses lose out when states cling to outdated government-mandated electricity monopolies.”
That study is earning increasing recognition. Writing in The Hill, Ellen Wald, Ph.D., a senior fellow at the Atlantic Council’s Global Energy Center, pointed out the PRI study found:
Between 2015 and 2020, prices fell 44.3 percent in the New England ISO, 44.8 percent in the New York City zone of the New York ISO, and 41.7 percent in the PJM Interconnection (across the Mid-Atlantic and parts of the Midwest). Monopoly utilities, on the other hand, increase pricing for consumers because of their system of cost-plus pricing, which essentially passes on costs to customers even for failed projects.
Dr. Wald wrote: “Monopoly systems, coupled with the inherent cost-plus pricing, ensure that utility managers never will be responsible for overruns and bad decisions. But when power production is subject to competitive markets, utility managers are incentivized to pursue lower costs.”
Bernard Weinstein, Ph.D., emeritus professor of applied economics at the University of North Texas, wrote in Inside Sources that “electricity used to be boring,” but no longer. Professor Weinstein noted:
About 25 years ago, the electricity landscape started to change as economists and others argued that competition could lead to lower prices and stronger grid reliability. Opponents of competition argued that consumers weren’t knowledgeable enough about power markets to make intelligent choices in a competitive pricing environment.
Now, the results of the experiment are in, and, as Professor Weinstein writes, “A recent study by the non-partisan Pacific Research Institute (PRI) provides compelling evidence that competition in power markets has been a boon for consumers.
“Using data from the U.S. Energy Information Administration (EIA), PRI’s researchers found that wholesale electricity prices in competitive markets have been generally declining or flat over the last five years.” In addition, “Grid reliability has improved.”Professor Weinstein concludes that the PRI shows, “The benefits of wholesale and retail competition in power markets are incontrovertible.”
Also commenting on the PRI study was Jeffrey Kupfer, former acting deputy secretary of energy in the George W. Bush Administration and an adjunct professor of policy at Carnegie Mellon University’s Heinz College. His Nov. 1 MarketWatch article carried the headline, “Competition in electricity markets lowers bills — but most states don’t allow that.”
Kupfer writes, “We know that competition works, with years of data showing that competitive wholesale and retail electricity markets provide more affordable energy prices and reliable service. Those competitive markets also help to reduce carbon emissions by fostering innovation and attracting investment in renewable energy sources.”
The PRI study lays out all the powerful data on pricing and reliability. Kupfer also notes:
Competition can also be a difference maker when it comes to climate change. In a June 2021 letter, nine former FERC commissioners endorsed wholesale competitive markets, noting that 80% of renewable generation in the U.S. has been deployed into these markets. This is one reason why federal data from 2008 to 2018 shows emissions in competitive states down 12.1%, compared with just 7.3% in monopoly states.
As the Energy Choice Coalition stated, also in response to the PRI report, “States with competitive electricity markets saw…greater emission reductions compared to monopoly states.” Kupfer’s own conclusion, after reading the PRI report: Competition is the “energy future that customers want…. Competitive markets – not monopolies – should be the path forward.”