Competitive retail electric markets have benefited consumers and the environment, but opportunities abound for new regulatory structures in parts of the country still controlled by monopoly utilities.
This was the message when two former regulators and an energy policy advisor convened Tuesday for a virtual panel chat hosted by R Street Institute, a free-market think tank. Participating in the discussion were Neil Chatterjee, former chairman of the Federal Energy Regulatory Commission (FERC) and current senior advisor at Hogan Lovells law firm; Pat Wood, former chairman of FERC and current CEO at Hunt Energy Network; and Landon Stevens, director of policy and advocacy at the Conservative Energy Network.
Policy and market forces: Threading the needle
Chatterjee, who twice served as FERC chairman between 2017 and 2020, said competitive wholesale markets have benefited consumers, the economy and the environment. However, balancing states’ decarbonization policies with market forces has been challenging.
“We really looked for ways to try and thread the needle here,” Chatterjee said. “I arrived at the conclusion that I felt that a transparent price on carbon […] was a vastly superior tool to decarbonize while also maintaining reliability and efficient market functioning.”
Chatterjee said that while the interest in market expansion across the country has increased, FERC’s efforts to promote organized electricity markets face opposition from the U.S. Senate Energy and Natural Resources Committee. Most of the senators on the Committee come from states without regional transmission organizations (RTO), which limits FERC’s power to act, Chatterjee said.
Wood, who served as FERC chairman between 2001 and 2005, said the level of modernization that took place when more innovators were allowed to operate in the market was unexpected, especially regarding renewable energy.
“The decarbonization of the Texas grid is the one thing I would say I would never have predicted 20 years ago, but it’s moving at a torrid pace,” Wood said.
Guardrails and competition
But Wood also said there is room for the government to impose guardrails, especially after Winter Storm Uri in February 2021, when 246 people died, according to the Texas Department of State Health Services. At the time, there was no mandatory minimum standard for winterization of the Texas grid.
“Four times in my professional career, Texas has been on the edge for all of the winter. You think we’d learn our lesson, but we didn’t get that done. It’s done now. But it’s a little late. People died because of that,” Wood said.
FERC started encouraging competitive retail electric markets more than two decades ago by promoting the concept of independent system operators (ISO), and subsequently encouraging utilities to join RTOs. Traditional wholesale electricity markets still exist primarily in the Southeast, Southwest and Northwest of the U.S.
Leveraging data from existing ISOs and RTOs could provide opportunities to improve the regulatory system in states controlled by monopoly utilities, according to Stevens.
“I think we have a great opportunity in some of these areas to not just go and pick PJM or MISO and pick a model and then rubber-stamp it down in some of these areas,” Stevens said, referring to two major RTOs. “But to create something new, maybe an RTO 2.0, if you will.”
