Electricity Markets

Witnesses say consumers lack power in wholesale markets; criticize DOE subsidy plan

The nation’s wholesale energy markets — and a plan by the Department of Energy to subsidize coal and nuclear plants — were panned early this month by witnesses at a hearing held by the House Energy and Commerce Committee’s Subcommittee on Energy.

Regional transmission organizations “have proven to be unresponsive to the needs of the public interest,” and the way these grid overseers are governed should be reformed, said Tyson Slocum, director of Public Citizen’s energy program, at the Oct. 5 hearing. Reforms, such as separating RTO bulk power market management functions from their administration of stakeholder processes, “must be considered,” he said.

Slocum said consumers are threatened by RTOs “constructed to serve transmission and generator interests at the expense of the public interest,” and are also threatened by a Federal Energy Regulatory Commission “that fails to uphold just and reasonable rate design, oversight and enforcement.”

Any federal or state efforts “to force consumers to pay for uneconomic baseload generation” cannot be considered just and reasonable, Slocum told members of the House subcommittee. He said that FERC should create an Office of Public Participation to give consumers a greater voice in matters overseen by the commission.

The hearing, “Powering America: Consumer-Oriented Perspectives on Improving the Nation’s Electricity Markets,” was part of the “Powering America” series that the House committee began in July 2016.

The hearing was intended to examine:

  • Whether consumers can effectively participate in federal regulatory proceedings and/or the stakeholder processes in the various electricity markets;
  • Whether statutory or regulatory reforms are necessary to provide consumers and other end users with additional opportunities to participate in the stakeholder or regulatory process;
  • Whether consumer needs and interests are adequately represented in today’s electricity markets;
  • Whether the organized electricity markets are delivering benefits to consumers; and
  • The reasons why electricity prices paid by consumers and end-users have remained flat in recent years despite the steady decline in the cost of generating power.

Others who testified at the hearing were:

  • Joseph Bowring, president, Monitoring Analytics;
  • Stefanie Brand, director, New Jersey Division of Rate Counsel;
  • John Hughes, president and CEO, Electricity Consumers Resource Council;
  • Rebecca Tepper, chairman, Consumer Liaison Group for the ISO New England region; and
  • Mark Vanderhelm; vice president of energy for Walmart.

The general consensus of the witnesses was that consumers cannot effectively participate in stakeholder processes in FERC-regulated wholesale electricity markets run by RTOs and independent system operators (ISOs). As a result, the speakers said, consumers’ needs are not being addressed and consumers are paying more for power than they should.

Witnesses generally also agreed that Energy Secretary Rick Perry’s recent proposal to subsidize traditional baseload power plants with on-site fuel storage would harm — and could even destroy — wholesale competitive markets at the expense of consumers.

Hughes, the CEO of ELCON, said that the stakeholder processes in ISOs and RTOs do not serve consumers of any size. Consumer interests “are consistently underrepresented in these processes,” he said.

Large U.S. manufacturers “are extremely price sensitive when it comes to electricity purchases,” Hughes explained, adding that rates that do not accurately reflect costs “hurt our competitiveness.”

He criticized the existing capacity markets in the U.S. as unstable and costly.

Hughes: ‘Still no stable market design’

“Even after 20 years of experience with these markets, there is still no stable market design,” Hughes said. “They are constantly being tweaked, amended and modified such that it is impossible to plan more than a few years in advance.” This makes it difficult for manufacturers to plan and develop new factories, he told the lawmakers.

He then questioned FERC’s price formation inquiries by saying, “[i]t is not clear where FERC is going with this initiative, but many of the proposals are attempts to address the fact that not every party is a winner in competitive markets.”

Hughes also criticized Secretary Perry’s proposal and noted, “DOE is saying manufacturing jobs are not as important as the jobs at economically obsolete coal-fired and nuclear power plants.”

Bowring, who is the independent market monitor for the PJM Interconnection, noted that his role as market monitor does not make him a consumer advocate, but he said that efficient, competitive wholesale power markets do bring clear benefits to customers and suppliers of power.

Bowring argued against external subsidies of the kind proposed by Perry.

In late September, the energy secretary directed FERC to issue a final rule that would require organized wholesale power markets to “develop and implement market rules that accurately price generation resources necessary to maintain the reliability and resiliency” of the country’s bulk power system.

‘No reason to intervene’

“There is no reason to intervene in the markets in order to provide reliability and resilience,” Bowring told the House hearing.

Asked later by subcommittee member Pete Olson, R-Texas, what is responsible for the recent retirements of coal-fired and nuclear power plants, Bowring replied: “Entirely market forces: it is uneconomic resources being replaced.”

“I do believe that competitive markets work and that New Jersey’s ratepayers have benefitted from the state’s participation in the federal electricity markets,” said Stefanie Brand of the New Jersey Division of Rate Counsel. “However, as time has gone on there have been more and more administrative changes to the market rules so that, with respect to the capacity market at least, it is so administratively driven that it is difficult to call it a market,” she said.

“At any given time at PJM, there are multiple proceedings to examine market changes,” Brand said, and the system “is so opaque and confusing and constantly changing that the average consumer will never make sense of it.” Likewise, FERC’s processes are opaque and provide too little consumer participation, she said.

Brand said efforts should be made to minimize administrative rule changes and said that RTOs should give greater consideration to costs when they look at transmission projects.

“Thank you for holding this hearing and recognizing the importance of consumer participation in the decision-making processes at our regional transmission operators,” said Rebecca Tepper, assistant attorney general for Massachusetts. Decisions made by RTOs and ISOs “affect every family and every business” in their regions, she said.

Tepper, who chairs the New England ISO’s Consumer Liaison Group, or CLG, noted that the group is designed mostly to educate stakeholders, not to advocate on behalf of consumers. She suggested that other RTOs should be required to form similar groups to increase communications between RTOs and consumers. She said that RTOs should consider costs in their decision-making and provide cost impact analyses for all major proposals.

Mark Vanderhelm of Walmart said the federal government should allow customers to install on-site generation at their homes and businesses with no restrictions based on financing, and should overturn rules that hamper customers from doing this. As an example, he noted that Walmart has been prevented from using power purchase agreements for generation (primarily solar) installed by third parties on Walmart property.

“Customer engagement in regulatory and stakeholder arenas is critical, especially as the industry transitions to a business model in which customer-sited energy management technologies and generation resources become as important to system operations as utility-owned resources,” he said.