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Diverse group pushes FERC to re-examine role of wholesale markets

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Diverse group pushes FERC to re-examine role of wholesale markets

Ahead of a March 9 deadline for regional grid operators to report to federal regulators on whether, and if so how, the changing generation resource mix is impacting grid resilience in their respective regions, a diverse coalition stakeholders detailed five principles it says should guide any possible reforms to those markets.

"Solving this challenge directly and holistically, rather than layering costly Band-Aids on top of organized wholesale markets, will benefit customers most in the long run," the coalition said in a letter dated March 6 and addressed to the Federal Energy Regulatory Commission.

FERC has been taking steps to update wholesale power market price formation rules to reflect some of the dramatic changes that have occurred in the industry. For instance, the commission held a technical conference in May 2017 to explore how the competitive wholesale markets in the eastern U.S. can select the resources desired by the states while preserving the benefits of those markets.

However, the pressure for FERC to revise the markets ramped up considerably after the U.S. Department of Energy in September 2017 asked the commission to adopt a new rule (FERC docket RM18-1) to ensure full cost recovery for certain power plants with "fuel secure" attributes — mainly nuclear and coal-fired generators facing premature retirement because they no longer are economical.

The commission in January rejected that DOE proposal as legally deficient. But it also launched a new proceeding (FERC docket AD18-7) to examine grid resilience issues more closely and gave each regional grid operator until March 9 to submit reports on grid resilience in their respective regions.

Meanwhile, several grid operators, including the PJM Interconnection, ISO New England, and Midcontinent ISO, have developed proposals to change how their markets value certain energy resources. Some states also have become proactive in finding ways to financially support generation assets, mostly nuclear units, they deem important for meeting their public policy goals. But the courts have found that several preliminary efforts in that regard intruded on FERC's jurisdiction and undermined the competitiveness of organized wholesale markets.

With similar issues now front and center before the commission, the coalition of groups representing industrial, public power, environmental, wind, solar and residential consumer interests has urged FERC to abide by five guiding principles as the agency reviews the design of organized wholesale markets.

Two of those principles are similar: one maintained that wholesale tariffs and market rules should be technology-neutral while another asserted that wholesale energy prices should be driven by natural market forces and compensate for the services provided. In other words, the coalition said market rules should detail needed attributes, including support of grid reliability and resilience, and then reward resources — regardless of the technology used — that demonstrate those attributes most economically.

"The wholesale market rules should not establish discriminatory criteria that provide an advantage to certain types of resources or technologies relative to other types of resources or technologies that are providing the same services," the coalition stated.

Another principle set out in the letter specified that wholesale market rules should respect state and local utility policies and resource choices without making customers pay twice for the same service — once for the capacity obtained pursuant to state and local policies and again for resources allowed to clear in wholesale markets.

A fourth principle outlined by the coalition said FERC should allow wholesale customers and suppliers to transact using bilateral contracts, if they choose to do so. The coalition reasoned that such contracts "are a key part of competitive wholesale electricity markets" and noted that they are in every other competitive sector of the economy.

The coalition's final principle maintained that wholesale markets should benefit customers and reduce barriers to entry and exit.

According to the coalition, market structures and foundational rules should not be constantly tweaked because every market change could create new uncertainty and risk. However, the letter also said some changes may be needed because the current capacity market constructs "may limit choice, create conflicts with state and local policy objectives, over-procure or unnecessarily retain capacity, and raise costs for customers."

Signing on the letter were officials for Electricity Consumers Resource Council, National Rural Electric Cooperative Association, American Public Power Association, Transmission Access Policy Study Group, National Association of State Utility Consumer Advocates, Natural Resource Defense Council, American Council on Renewable Energy, American Wind Energy Association and the Solar Energy Industries Association.