The Energy Markets Podcast

Texas lawmakers just concluded their 88th biennial legislative session in Austin, and energy issues were very much at the fore as a range of proposals that would have incentivized investment in gas-fired generation and disincentivized renewables were hotly contested. The R Street Institute's Josiah Neeley discusses the energy-related aspects of the session, which he said could have turned out much worse for consumers than it did. Many of the pro-gas, anti-renewable measures proposed in the Senate were rejected by the House, while others resulted in compromises that minimized the harm to electricity consumers."I would say that at the start of the session, if you looked at what was being proposed, the way I would put it was it was not just bad, but comically bad, you know, comic book villain bad, some of it. And what you ended up with was mediocre bad," Neeley says. "I think consumers, they're not going to get relief from their bills, but there will be some limitation in terms of how much they're going to go up due to some of this stuff."Support the show

We reached out to ITC Holdings Corp. for the transmission owner's view on monopoly transmission development and the incumbent transmission owner's right of first refusal, known by the acronym ROFR, to build new interregional transmission grid projects.The issue has come to the fore as the federal government plans to undertake a massive buildout of the U.S. transmission network, and separately as the Federal Energy Regulatory Commission has proposed, in an as-yet unfinalized rulemaking, to partially reinstate ROFR for interregional transmission projects in hopes of sparking more much-needed transmission development.The competitive selection process is too cumbersome to rapidly move oftentimes  controversial transmission projects, says Nathan Benedict, an economist and ITC's manager of regulatory strategies. "Relaxing of the federal ROFR has made it harder to collaborate on projects. When we think about . . . what it takes to get a regional transmission plan put together, you need people to come to the table who trust one another and who are focused on the reliability of the grid and not focused on dividing out these pieces in order to subject them to competitive bidding."But how do we ensure that electricity consumers pay the least cost for the transmission buildout without competitive solicitations? "It's as easy as regulation," he says. Those who advocate denying the incumbent transmission owner the right of first refusal to build new transmission projects "are essentially wanting to bid on projects because they want monopoly rights," Benedict says. "What it is is it's a regulated bidding process that just creates new incumbents."State lawmakers have been rushing to adopt new state-level ROFR mandates, and several of those already in place have been subject to litigation in both state and federal courts. Benedict declined to speak directly to a recent Iowa Supreme Court decision rejecting that state's ROFR as "quintissentionally crony capitalism." Nevertheless, he rejected the idea that ROFR protections for incumbent transmission owners represents crony capitalism. "It's simply regulation like we've had for a hundred years," he says.Benedict is skeptical that FERC's proposed change in the federal ROFR standard will make much of a difference. He calls FERC's proposal a "limited reinstatement," and maintains full restoration of the federal ROFR is necessary. FERC's proposal is "a move in the right direction. But clearly, it's not enough to just do that."Support the show

Back in the 1990s, the University of Delaware's Willett Kempton conducted early vehicle-to-grid (V2G) experiments with PJM, operator of the MidAtlantic region's wholesale power market, testing the feasibility of using electric vehicles to provide regulation services to the grid. In this episode, Kempton speaks to the progress that's been made in the intervening decades to set the stage for today's electricity market, where EVs are just beginning to have enough market penetration to provide enough battery storage at scale to make bidirectional electricity flows between vehicles and the grid a reality – and an important reliability tool for grid operators who will be challenged by steadily increasing dependence on variable, nondispatchable generation resources.Kempton, professor in the College of Earth, Ocean and Environment and the Department of Electrical and Computer Engineering at the University of Delaware, is also an offshore wind expert, and talks about the wave of coming offshore wind installations domestically, taking advantages of scale economies that have make the technology almost at price parity with the wholesale markets.Support the show

Former FERC Commissioner Rich Glick discusses the need for transmission grid expansion and market reforms to accommodate renewable energy. He highlights challenges in competitive markets, addressing climate-induced stresses on reliability and the importance of competition in the electricity sector. Glick reflects on FERC's proposed changes to ROFR provisions and advocates for reforms to align with changing resources and climate concerns.

William Hogan, the Raymond Plank Research Professor of Global Energy Policy at Harvard's Kennedy School of Government, along with his colleague Scott Harvey, are the architects of the market structure employed in every competitive regional wholesale power market in the United States, known as the bid-based, security constrained economic dispatch model with locational marginal prices.This market model has been the subject of criticisms from its inception some three decades ago,  but in recent years it has come under renewed attack from interests who claim it is inadequate to support a transition to a clean-energy grid comprised of many zero marginal cost intermittent renewable generation resources.Hogan and Harvey authored a paper in October 2022 defending and explaining the market structure incorporating locational marginal pricing, or LMP. In this episode, Hogan elaborates and explains that, not only are critics wrong to suggest LMP markets aren't up to the task, but they are in fact the only means available to facilitate the clean-energy transition. "If you want an efficient market in the electricity system, this is all the only way to do it – that we know of," Professor Hogan tells the podcast. "This model is ubiquitous and successful. I call it successful market design."Hogan scoffs at criticism that the LMP market design isn't the correct vehicle to accommodate increasing amounts of zero marginal cost renewable resources. Such criticisms fail to recognize the role that battery storage and demand-side resources will play in decarbonized markets, he says. "Even if you had 100% renewables (on the grid), there will be periods of time when you’re capacity short because you just didn't have enough of them. And then the demand side is going to be much more important because we're going to have to adjust demand. And implicit in the theory, or explicit in the theory, is that the price will be set by the demand side, not by the supply side, but it's the same marginal cost principle. You get the same answer in terms of economic dispatch. And you get the same pricing outcome across the grid. So absent the fantasy world of an infinite supply of zero marginal cost energy, that theoretical problem doesn't arise."The empirical proof that  the criticism is misplaced is evident in the Western interconnect, where increasing numbers of utilities are joining the Western Energy Imbalance Market, which employs LMP pricing, primarily to accommodate the rapidly increasing amounts of renewable energy resources in the region. "This is a very powerful empirical argument that says, no, you’ve got it exactly backwards. It's not that we need to get rid of this. We need to strengthen it and expand it," Professor Hogan says. "Because the basic design works in theory and it works in practice, and all the other things that we have tried – I don't know how many of your listeners know but PJM tried something else first. And it didn't work. And New England tried something else first, and it didn't work. And California tried something else first, and it didn't work. And Texas tried something else first. And it didn't work. And then they all had to revise and reform and go through the agony of that process to get to bid-based security-constrained economic dispatch with locational marginal prices, which is now done across all of these. And New York started this from the beginning, the Midwest started this from the beginning, the Southwest Power Pool when it converted to an RTO started with this, so that's why it's now true in all of these markets in the United States."Support the show

MIT economist Tim Schittekatte (tsgee-teh-kah-tuh) details his recent working paper, Electricity Rate Design in a Decarbonizing Economy: An analysis of time-of-use and critical peak pricing. Two of his co-authors are lions of energy economics, MIT economists Paul Joskow and Richard Schmalensee. The paper finds that a combination of time-of-use (TOU) and critical peak pricing (CPP) at retail can approximate the price signals electricity consumers would otherwise get from the competitive wholesale power markets.Twenty years ago, price-responsive demand was supposed to be a major benefit of electricity restructuring at retail. But beyond the more sophisticated commercial and industrial large end-users, it has been frustratingly elusive to have effective demand response. The MIT working paper provides an avenue to approximate the market forces of the stated first-best option in which electricity consumers respond to actual prices in the marketplace. The paper's second-best option, a combination of TOU and CPP pricing, provides about two-thirds of the price responsiveness available from the first-best option, and could be implemented by state regulators regardless of the state's retail market design.Smarter rate design also provides an avenue for capturing more value from the buildup of smart meters over the last decade and a half, the capabilities of which have been vastly underutilized. Schittekatte and his co-authors note that "only a small fraction of these meters are presently being used to support more effective retail rates." In their commentary on the working paper, Schittekatte and his co-authors propose their rate framework to address the problem that only 7.3% of U.S. consumers are enrolled in a rate plan alternative to the prevailing flat price charged for electricity 24 hours a day, seven days a week, regardless of the price volatility and operational stresses of the wholesale bulk power markets. The problem is also widespread around the world in countries with competitive wholesale electricity markets, the economist notes.This disconnect between the flat retail price electricity consumers see and the widely fluctuating prices in the wholesale market discourages electrification, Schittekatte and his co-authors say, calling for "urgent action to reform retail electricity rates so that they that encourage, rather than work against, cost-efficient electrification while not ignoring considerations related to equity, complexity, consumer acceptability, and the recovery of reasonable costs incurred by utilities. We do not propose a single optimal solution for all situations, but rather we have identified particularly promising directions of reform."Schittekatte also sees the paper's alternative to flat rates as an answer to the "backlash" that occurs when retail electricity prices suddenly increase causing consumer concerns and prompting politicians and regulators to intervene in markets. As examples, he cites Texas in the U.S. and Spain in the EU. "They don't understand what goes on because that volatility is unseen compared to other markets and politicians get very, very [unrested] and they do market intervention," he says.The EU economist also sees a role for demand response to play in tempering the need for investments in the network expansions, particularly distribution, necessary to accommodate electrification of home heating and transportation. "We’ve got to invest in networks, but please, don't excessively invest in networks."Support the show

More than ten years ago, Dominion Energy convinced Virginia lawmakers to clip the wings of the state's utility regulator, the State Corporation Commission. After a decade in which Virginia Power overcollected on its rates as an unregulated monopoly, the Legislature in Richmond had finally had enough and passed legislation restoring the SCC's utility ratemaking authority. In this episode, Brennan Gilmore, executive director of the advocacy group Clean Virginia, discusses this lost decade when Dominion obtained virtually everything it wanted in Richmond and overcollected in rates nearly $2 billion, and details the efforts of his group and a vast coalition of other interests in working to successfully pass  legislation restoring the SCC's authority to oversee Virginia Power's rates in the public interest.Gilmore, in a statement heralding passage of the legislative package, proclaimed: "For far too long Dominion Energy has wielded its political influence and contributions to write the rules of its own regulation. This year's legislative session has shown definitely that this era of self-regulation has come to an end.""We've been fighting for this and we've been fighting to minimize Dominion’s political influence, and have been pushing back at them on the electoral playing field where the utility, I think, plays an outsized and inappropriate role, in hopes that we could get to a place where we would have good policy that protected consumers in Virginia," Gilmore tells EMP. "I've worked on this every day for the last four to five years. I didn't think it was going to happen this soon."Gilmore gives credit for the outcome to involvement by Gov. Glenn Youngkin, who took an active role in the negotiations that produced the compromise legislative package, calling the Republican the first governor in years – whether Republican or Democrat – who has not been "asleep at the wheel" while Dominion obtained a succession of bills benefiting the utility's shareholders at the expense of the utility's electricity consumers.But he also gives credit to the changing face of the Virginia Legislature, which has seen an upswell in elected officials who disavow taking campaign contributions from utilities. Clean Virginia provided an important campaign finance alternative for politicians seeking office in Richmond. But Gilmore notes that his advocacy group was part of a huge coalition advocating for reform, including the Virginia Manufacturers Association, Google and Amazon, the Sierra Club and others. "It was basically any institution or organization or individual who pays an electric bill in the state was against that Dominion legislation," he says.Clean Virginia's efforts to restore the public interest in utility oversight doesn't stop with this initial victory, Gilmore says, noting the face of the Legislature is changing in Richmond, with redistricting prompting retirement of Dominion "stalwart allies" amid a dramatic upsurge in candidates who refuse to accept contributions from utilities. This makes him optimistic that future legislative triumphs will be in store for the Commonwealth's captive ratepayers. But until the day there is an "equitable campaign finance system," Gilmore says, Clean Virginia will continue to "fight fire with fire ... and put money on the table so that utilities aren't the only option to get into office."Support the show

Jason Stanek, the lame duck chairman of the Maryland Public Service Commission, is riding out the remainder of his term in office with a "maximum enforcement" campaign to crack down on retail suppliers "that engage in deceit, confusion, and trickery in order to close the deal." January saw the second-highest number of consumer complaints received, and February is shaping up to set a record for the month, he said, promising the PSC will use "expedited procedures to, if necessary, eject suppliers from the market."He discusses how he's lost faith in retail competition in electricity. "I am not the cheerleader of retail choice that I once was," he notes, adding, "I can tell you that there's an appetite amongst a lot of state legislators who would say that after 23 years since we've been restructured, this experiment has not gone according to plan and perhaps we just call it a day." But he said he's not ready to give up yet. "We eject the bad actors, then we could rehabilitate it. Focus on the value, focus on products, focus on innovation."Stanek concedes the state's market structure could be improved, but he called himself an implementer of policy. If retail suppliers want a better market structure then they should to go to Annapolis and advocate for change, he said. But "structural change is a heavy lift" and utilities are "well-entrenched" in state capitals, he noted.Calling Maryland a "progressive state" with community solar, utility solar and electric vehicles mandates, he cautioned against folding too many clean-energy mandates into utility customer's rates. "We have to remember that, at the end of the day, whether the customer takes their commodity from the utility or the supplier, costs are going up. And all of these programs cannot be borne on the backs of utility ratepayers."Stanek looks forward to the remainder of his five-year term, which ends June 30. "I am not recusing myself on any active cases just yet. I still have another four-and-a-half months on the job," he said. "Between now and June 30th my sole focus is on making sure that my work at this agency gets done. And then after June 30th I'll begin to consider what comes next."Support the show

Davante Lewis credits grassroots community organizing and coalition building for helping him defeat a long-time incumbent to garner a seat on the five-member Louisiana Public Service Commission. Lewis – who professes he's a regulator and "policy nerd" and not a politician – aspires to assuring the clean-energy transition is also a just transition. He wants to transform his Louisiana district's descriptor from "Cancer Alley" to "Answer Alley" by promoting jobs and jobs training to support rapid growth in renewable energy sources, providing a model for a just clean-energy transition nationally. Lewis has a Ratepayer's Bill of Rights that addresses punitive late fees and service cutoffs that disproportionately and adversely affect lower-income communities. He also looks to create a consumer advocate position that represents ratepayer interests in cases before the commission. He wants to bring the community into PSC open meetings along with the more typical crowd of lobbyists, lawyers and other utility industry interests. "I'm going to bring the people back in these rooms." Lewis wants to engage in a dialogue with the natural gas, oil refining and petrochemical industry interests in his district – as well as the utility industry interests he ran against as a candidate – confident that, while they may not agree, they will come to understand one another and work productively together. He calls for an all-of-the-above strategy in a  just clean-energy transition, but particularly eyes rooftop solar and battery storage and offshore wind for Louisiana. In developing an all-inclusive strategy, Lewis says "competition and deregulation" will be a key component of discussion over the next three years. "People want competition because they want choices."But while he sees carbon capture and sequestration (CCS) becoming a priority for some in Baton Rouge, potentially affecting the role of the commission, call Lewis deeply skeptical but open to being persuaded by science showing the proposed technology to be "the safest way to handle environmental and consumer concerns."Support the show

Chris Carmody, executive director at Carolinas Clean Energy Business Association, says energy-intensive electricity customers will leave or not relocate to the Carolinas because of the difficulties they face buying their energy needs from the resource mix they prefer. There's "no tolerance for anything that resembles competition. And that really is to the detriment of economic development in the Carolinas," he said.While North Carolina has a carbon-reduction plan in place, Carmody said it essentially cements Duke's monopoly into the future, and the utility's clean-energy investment plans rely on untested technologies, like small modular nuclear reactors, rather than the least-cost renewable energy options in the market. Rather than a threat to the utility's bottom line, "I think they really see [the carbon-reduction plan] as an opportunity to make a lot of money," he said.Carmody sees South Carolina differently, describing the state's political atmosphere as leaning toward opening up wholesale power market competition by joining a regional transmission organization. "I think in terms of potential market development and discussion the Carolinas will be one of the most interesting places to watch over the next few years," he said.Support the show