The following is a contributed article by Colorado State Senator Chris Hansen, D, and Doug Howe, director at the Western Grid Group and a former commissioner with the New Mexico Public Regulation Commission.
Since the inception of the Federal Power Commission — the predecessor to FERC — there has been an important and valuable "struggle" between regulators and the regulated. In the early to mid-1900s it was about conflicts over hydroelectric power siting and regulation of interstate natural gas sales. Today, it is about how to balance the transition of the electricity grid from fossil fuels to renewables with grid resiliency while protecting ratepayers. To do so, regulators and developers must also navigate a patchwork of state regulations, emissions reduction goals, and localized utility territories.
Utilities logically want what’s best for their bottom line, environmental advocates want zero-carbon energy, and ratepayers want low electricity bills and customer choice. While many might consider these goals incompatible, there is a path forward that achieves a desirable outcome for all parties: regionally coordinated transmission organizations.
Progress toward an RTO, or an incremental step in that direction, such as an energy imbalance market, should not be conflated with electricity sector deregulation, as a recent Utility Dive opinion piece has done. Reforming wholesale markets through RTOs and reforming the retail part of the electric system are two very different issues, with two very different goals.
Regionally coordinated, competitive wholesale power markets are inherently efficient, create savings for consumers and create opportunities for low-cost, low-carbon, reliable power to meet consumer needs. On the other hand, the goal of retail deregulation is consumer choice, which might or might not result in lower prices or cleaner electricity portfolios than could occur in the regulated utility context (though it has generally resulted in better consumer satisfaction according to reports by J.D. Power).
In an RTO, bidding processes determine which power plants are the most cost-effective and get to dispatch their power. Contrast that idea to what we currently have, where utility monopolies dominate states in the West and Southeast and there are no market forces to dictate which power plants are the least-cost power providers. Additionally, RTOs should not be confused with exertion of more government control — in fact, RTOs are open free markets that manage the costs for the consumer. It is not surprising that utilities in non-RTO regions that have high cost power plants (e.g., coal) want to avoid the cost-discipline inherent in RTOs.
The competitive nature of a regionally coordinated market drives down both utility and consumer costs. The western energy imbalance market has exceeded $1 billion in gross benefits to customers since its launch in 2014. Experts estimate that a southeastern regional transmission organization could save $348 billion by 2040. Even FERC’s own estimates show that RTOs will save hundreds of billions of dollars.
Everything Old is New Again, the previous Utility Dive opinion piece, implies that state leaders lose control of their state energy policies in an RTO. This is not true and has never been true of an RTO, and the West is perhaps the best example of states collaborating in a wholesale market while pursuing very diverse state-led energy policies.
Whether you agree with their energy policy or not, California certainly stands as the prime example of a state with strong, state-led energy policies and a well-functioning RTO. Other western states, with state energy policies as diverse as Wyoming and Washington, successfully participate with California in the Western Energy Imbalance Market with significant savings to consumers in every state in which it operates.
RTOs do not solve all problems that the regulators and the regulated will face in the transition to a carbon-free grid, and they should not be sold as such. What they will do is produce real savings for consumers by instituting market discipline, and eliminate unnecessary cost burdens created through transmission tariff pancaking that restricts the flow of lower cost renewable energy across regions.
To say that reliability, affordability and innovative grid investments are best supported through traditional regulatory structures misunderstands both the problem and the solution. A coordinated grid and regional power markets are inevitable not only because of the many benefits, but because it will help resolve many of the rifts between regulators and the regulated.
John Adams famously said, "try and fail, but don’t fail to try." Clearly, the traditional energy regulatory structures are an outdated solution to a modern problem. We have an opportunity to take lessons learned from existing regional markets and create structures that will benefit consumers and utilities. It will be those that try that will shape the solution, while those that fail to try will have to find a way to fit in, at a potentially great cost.