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New FERC member argues power markets must 'respect' state policy choices

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New FERC member argues power markets must 'respect' state policy choices

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Commissioner Allison Clements
Source: Federal Energy Regulatory Commission

"Fixing markets" ranks No. 1 on the priority list of the newest Democrat on the Federal Energy Regulatory Commission, Allison Clements said in an exclusive Feb. 2 interview with S&P Global Market Intelligence and S&P Global Platts.

The former clean energy attorney, who joined the commission in December 2020 after a lengthy confirmation wait, said her other key priorities are finding ways to drive the building of needed new transmission lines more quickly and revamping an outdated policy for certificating natural gas pipelines.

A Republican-led majority at the agency over the past few years has pushed through orders addressing out-of-market resource procurement actions by states within the nation's eastern regional grid operators that administratively raised capacity market bids of resources receiving state subsidies in an effort to combat the potential for artificial price suppression.

Those actions frustrated states with aggressive decarbonization targets and clean-energy goals, adding to tensions that spurred some states to consider taking back resource adequacy responsibility, a move that could spell the end of mandatory capacity markets.

While supporters within and outside the commission asserted that the market reforms were necessary to ensure the integrity of the wholesale competitive markets, critics expressed warnings of artificially inflated prices, over-procurement of capacity, and a potential exodus by states and market participants.

Among those critics were now-Chairman Richard Glick, who had been the sole Democrat on the panel from September 2019 until Clements was sworn in.

Though FERC is expected to retain its Republican majority at least through June, Clements brings a powerful voice in favor of rethinking minimum offer prices rules, or MOPRs, and current market constructs.

'A means, not an end'

While capacity markets have historically worked well to harness competition and ensure resource adequacy at the lowest cost, their market design is now outdated, Clements said.

"So as the resource mix has changed and changed at a faster clip than expected, the idea of one blunt capacity product that is supposed to continue to cost-effectively assure resource adequacy no longer holds," she said. "The reality is the resource mix has changed, and we need to use these markets, which are a means, not an end, to harness competition and to continue to do so" as the energy transition underway turns to cleaner resources.

While avoiding specifics on possible market rule changes, Clements said any fix must allow the markets to accommodate state policies and choices over the generation mix within their borders and do so while continuing to deliver affordable, reliable electricity.

"The way the markets are structured, that was a policy choice. And current capacity markets were a result of that policy choice," Clements contended. "And now states are making policy choices around their resources that they want to power their economies, so the role of the markets is to respect that."

'I don't think the commission has to wait'

Addressing a chorus of recent calls for FERC to help boost high-voltage interregional transmission lines to accommodate more renewable energy, Clements said the commission should act under its existing authority without waiting for further direction from Congress.

Some transmission advocates have argued that federal lawmakers need to produce new legislation in response to a 2009 ruling by the U.S. Court of Appeals for the 4th Circuit that has thrown into doubt FERC's backstop siting authority for interstate transmission lines under the Energy Policy Act of 2005. Others have argued that the commission should initiate a new rulemaking requiring grid operators to coordinate better on interregional transmission projects with broad climate benefits.

"I think the commission can do a lot within its existing authority in terms of the modeling process by which it determines that new transmission is needed, best practices for modeling using probabilistic approaches, using up to date cost inputs, and predicting scenarios in the future," Clements said.

Clements said she sees a "strong concept" in the Energy Policy Act provision giving FERC backstop siting authority for national transmission corridors, adding that she would "humbly encourage" Congress to provide further clarification on the agency's jurisdiction under that statute.

Acknowledging an urgent need to decarbonize the U.S. power sector, however, Clements said FERC has plenty of authority to move forward on its own.

"I don't think that the commission has to wait for further direction to try and take action to fulfill its obligations," Clements said.

With a growing number of states pursuing increasingly aggressive climate policies, Clements concluded by stressing that FERC needs to be mindful of the lengthy development timelines associated with major new transmission lines. "That's immediately high on my list of things that I think we have to start working on now in terms of the reality of lead time in developing big infrastructure," Clements said.

Jasmin Melvin is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.