"Extra-market additions," including renewable energy credits and reliability must-run contracts, have left competitive U.S. power markets run by regional grid operators "in tatters," according to a new white paper from law firm Wilkinson Barker Knauer, LLP.
The paper recommended that the Federal Energy Regulatory Commission "end these market interventions once and for all" and "stop the 'around market' and 'in-market' madness."
"The [restructured administrative market model, or RAMM,] is flawed and failing, and no model adherent is immune to its symptoms," the firm said.
The white paper pointed to several recent instances of "around market" solutions to protect energy resources, including measures adopted by New Jersey and Connecticut to support nuclear plants in those states. In addition, regional grid operators are pursuing "in market" mechanisms to ensure grid resilience and cut carbon dioxide emissions. For example, the PJM Interconnection recently backed FERC's developing a universal in-market approach to ensuring grid resilience and the New York ISO has launched efforts to incorporate a price on carbon in its market.
By adopting such solutions, the RAMM approach is "no more 'competitive' than vertically integrated states' resource planning processes," the paper argued.
In particular, the white paper said the future of energy markets could hinge on FERC's pending decision on ISO New England's recent request for a two-year reliability must-run contract for two units at Exelon Corp.'s natural gas- and waste heat-fired Mystic Generating Station in Massachusetts.
Exelon plans to retire the units on May 31, 2022, blaming what the company said are flawed market rules that inadequately compensate the units for their reliability and resilience benefits. But the ISO-NE said the units are needed to avoid rolling blackouts in the region and closure of the facilities will imperil the financial viability of the adjacent Distrigas LNG terminal because the Mystic plant is the terminal's biggest customer.
"In making the request, ISO-NE admits its market model cannot provide long-term fuel secure resource adequacy for the region but it wants the opportunity to be both a 'market' and an integrated resource planner for important energy infrastructure, even if it is not within its jurisdiction," the white paper said.
If FERC grants the ISO-NE's request, the commission will "erode any remaining resemblance that the RAMM operators have to an actual market," the paper added.
The law firm said market inventions from states and grid operators should stop but acknowledged that "it would take extraordinary courage from FERC to draw this line in the sand." According to the white paper, the only functioning regulatory constructs for electricity are vertically integrated markets or regions such as the Southwest Power Pool and Midcontinent ISO that have "planned utilities underneath and residual energy markets, both of which allow for rate-based, joint dispatch."
