Northeastern U.S. power markets are straining to deal with higher levels of subsidized resources and that along with the potential for federal government intervention could cause the markets to collapse, market participants and regulators said.
"I think they're [power markets] in real danger of unraveling," David Ismay, senior staff attorney with the Conservation Law Foundation, said during a panel discussion May 31 at the Platts Northeast Power and Gas Conference in New York.
He also pushed back against the idea that tension within eastern wholesale power markets is being caused by state policies that support clean energy resources. State climate policies and laws that require emissions reductions have been said to be an external irritant to markets, he said separately on June 1.
"The markets have not adjusted to provide the products states want," Ismay said.
Nevertheless, recent state-level actions have led regional grid operators to enact and propose market fixes designed to accommodate state policies like zero-emissions credits for nuclear plants. The PJM Interconnection on April 9 filed two proposals with the Federal Energy Regulatory Commission asking FERC to "determine how the wholesale electric capacity market should address state subsidies of electric generators."
Similarly, FERC approved ISO New England's two-phase Competitive Auctions with Sponsored Policy Resources plan on March 9.
Additionally, the U.S. Department of Energy is looking at two rarely used statutes that could be used to support struggling coal and nuclear power plants. Further details around that approach emerged late May 31 in a draft National Security Council memo that said the DOE could direct system operators to purchase power from designated facilities.
Markets could devolve into 'glorified power pools'
Actions such as these could disrupt competitive power markets to the point where they cease being true markets and become more like glorified power pools, the panelists suggested. The wholesale power markets are intended to generate enough net revenues from energy, ancillary services and capacity markets to provide incentives for entry, for remaining in the market, and exiting it.
In contrast, generators in the Midcontinent ISO and Southwest Power Pool rely almost exclusively on cost-of-service regulation to provide incentives for market entry and exit. So instead of being a self-sustaining market, MISO is a power pool on top of regulated utilities, Joe Bowring, president of Monitoring Analytics, PJM's market monitor, said in an email June 1.
"There are two possible options and one is we could end up like MISO. That's the dark view, a glorified power pool," Bowring said on the May 31 panel. The good option is that as long as things are priced and all energy is the same and there are no special advantages, then the markets will evolve in interesting new ways, he said.
Ismay agreed there are two options and said, "We are perilously close to losing the markets."
And some argue that a glorified power pool may be a better outcome because the only functioning regulatory constructs for electricity are vertically integrated markets or systems like SPP and MISO, according to a recent white paper from law firm Wilkinson Barker Knauer.
Markets are at a 'critical juncture'
Though it is difficult to say how changing fuel mixes, state policies and potential federal intervention will alter power market structures, the panelists generally agreed the industry is at an inflection point.
"I think the markets are at a critical juncture," Rana Mukerji, senior vice president of market structures at the New York ISO, said during the discussion May 31. "We are having public policy decisions on wind and solar … and all the distributed generation that is coming, all of which has to be integrated into the market. So this is a real evolutionary step for markets."
Jared Anderson is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.
