The following is a contributed article by Michael McKenna, president of MWR Strategies. McKenna previously served as deputy director of the White House Office of Legislative Affairs under Donald Trump and advised the president on energy, environmental and other issues.
Earlier this month, nine former Federal Energy Regulatory Commissioners decided to mount a defense of organized markets and demand that the commission require everyone to belong to one. They started out: "As former FERC commissioners and chairs ... our strongly held view (is) that organized regional wholesale power markets ... provide compelling platforms for renewable energy development and are achieving considerable consumer benefit."
Unfortunately, they fail to provide any evidence that suggests organized markets "provide compelling platforms (whatever those might be) for renewable energy development" nor do they produce any evidence that such markets "are achieving considerable consumer benefit."
That's probably because there is no evidence that supports that. What we do know is during the most recent exposition of the "benefit" of organized markets, prices in the Electric Reliability Council of Texas (ERCOT) reached an astounding $9,000/MWh, and that Texans are $50 billion poorer because of their misguided reliance on ERCOT.
Undeterred by that recent history, the commissioners soldiered on: "A considerable body of data, published in highly credible studies, establishes that substantial customer benefits would flow from expansion of organized wholesale markets."
That "considerable body of data" is footnoted in the letter and appears to consist of a single report by Brattle, paid for by who knows which set of deep pockets (bet Google). The report projected that an organized market in the Southeast would produce lower costs. Predictions, however, especially those probably paid for by interested parties, are a lot different than examinations of the actual record.
It is truly amazing that 25 years into this experiment we still have no ability to say dispositively that it has either worked or failed with respect to costs. Someone — maybe a federal regulator — should do an independent study.
The commissioners also offered, again without evidence, that organized markets are better for the environment.
Among other things, the recent results in the PJM Interconnection auction call into question claims of environmental superiority.
No less an advocate than Ari Peskoe, director of Harvard Law School's Electricity Law Initiative was clear with respect to the PJM auction (although he made the comment prior to the results being announced) when he told Bloomberg: "The market has been trending toward renewables, but this is pulling it back. It's fighting the future." PJM's recent capacity auction — in which 3,414 additional megawatts of natural gas cleared (compared to 312 additional megawatts of wind and 942 additional megawatts of solar) — will do nothing to slow PJM's tilt towards traditional fuels.
That doesn't even address the fixed resource requirements elections in PJM, which increased almost 20 gigawatts and at 33.3 gigawatts were the second highest on record (thank you, Dominion).
If any of that makes you wonder, think about Exelon's announcement that they plan to close Byron and Dresden for cost reasons, coupled with the failure of Quad Cities to clear the auction.
Exelon has no illusions. They noted that: "The result is that customers in Northern Illinois and throughout PJM will pay for more capacity from polluting generation instead of securing carbon-free megawatts from Quad Cities."
Or perhaps you'd prefer to contemplate the New York Independent System Operator's (ISO) involvement in the premature closure of Indian Point, which produces as much electricity as all of the wind and solar in New York combined.
Or maybe the experience of Georgia, which between 2005 and 2018 reduced its greenhouse gas emissions by 52 million tons, more than all but 5 States.
Tell us again how organized markets produce superior results for the environment.
Notably, the commissioners did not argue that organized markets lead to enhanced reliability. That was wise, given that reliability failures related to organized market structures in Texas and California are partially or fully responsible for hundreds of deaths.
The Wall Street Journal recently reported that ERCOT came within five minutes of a "complete collapse" this winter, and this summer could be worse. The North American Electric Reliability Corporation (NERC) recently warned that outages are possible in Texas, California, New England and the central United States — all areas with organized markets. Meanwhile, NERC found a low risk for blackouts mostly in regions without organized markets, even in the Southeast despite its hot, humid summers.
The deaths in Texas and California are terrible enough, but the inability of either market to properly assign blame and impose punishment is a standing rebuke to the market design, unless the "market design" specifically contemplates either tolerating or monetizing blackouts, deaths and mayhem.
Dominion understands the very real deficiencies of PJM. Texas citizens understand the very real deficiencies of ERCOT. Californians understand the deficiencies of the California ISO (CAISO).
Those who advocate for mandating participation in organized markets as a matter of law — like those who signed the letter and their allies (like Google) — also understand the pathologies associated with organized markets. That's why they need Congress or FERC to mandate participation in them.
If something contractual needs to become compulsory, it is probably because it is not a good idea.
There are two other things worth noting about the commissioners' letter.
First, there are at least twelve former commissioners who did not sign the letter. These include Commissioner McNamee, who noted in an email to Politico that: "The recent blackouts in Texas and California have demonstrated that the RTO experiment needs to be reconsidered. We don't need to export their failures to other parts of the country. Traditional rate regulated utilities with their direct obligation to serve customers and oversight by state public utility commissions may offer the best path for providing customers with reliable, affordable and clean energy."
If you want certain outcomes with respect to generation, the easiest, best and most reliable way to get them is to embed them in an integrated resource plan that investor-owned utilities submit to state utility commissions for review and approval.
Second, these former commissioners must understand that the organized market model is failing and flailing. The letter they recently tossed into the debate is instructive because it is an admission that there are legitimate concerns with the organized markets that can no longer be ignored.
Rather than more propaganda, we need an independent assessment of the economic value of organized markets, their effect on reliability, and their record with respect to getting transmission built.
We also need some credible explanation for why the leadership of regional transmission organizations (RTOs) and ISOs are accountable to no one; they are not elected nor appointed by elected officials, nor do they have appointed officials on their boards. The biggest beneficiaries of organized markets are those who staff the markets. In CAISO, for example, the operating budget jumped from $189 million in 2019 to $201 million in 2021, with 75% going to salaries and benefits. At ISO New England, 138 executives made more than $200,000 a year in 2019. That seems like a lot.
When unelected and unaccountable people are left in charge of the most complicated machine ever built, results with respect to cost and reliability are going to be suboptimal.
Instead of wandering around the issue, the commissioners should have asked for a substantial examination of the record. It would have been a step in the right direction.