In May 2017, FERC held a technical conference on wholesale energy and capacity market design that focused on Regional Transmission Operators (RTOs) and Independent System Operators (ISOs) in the Eastern Interconnect, including ISO New England (ISO-NE), New York ISO (NYISO), and PJM Interconnection (PJM). The goal of the conference was to examine emerging issues between state policies and wholesale power markets, but little consensus emerged, as participants focused on the issues and remedies that hit closest to home.

Key Details

• The conference included market operators, regulators, market participants, and other stakeholders invited to discuss emerging issues at the intersections of state energy policies and wholesale energy markets in ISO-NE, NYISO, and PJM
• The primary driver for the conference was growing tension from the market impacts of state-level generation subsidies which encourage decarbonizing the electricity sector
• Some participants claimed that the increasing impact of these subsidies has led to distortions and that markets cannot function freely and fairly with state intervention
• Others argued that states have an important role to play in procuring low-carbon generation when markets fail to do so and that state policies and markets can coexist
• Opinions varied sharply about whether solutions can be achieved through markets or state policies and whether current market constructs are sustainable in the long term
• FERC has outlined five broad paths for reconciling state policies with wholesale power markets, from region-by-region negotiated solutions to litigation or even re-regulation
• There is little consensus about which approaches would work best in each market, and varying state policies and goals create competing priorities in multi-state markets

Implications

• The conference merely served as a fact-finding mission for FERC, though the fact that the conference took place signals increased FERC attention to these emerging issues
• Concrete next steps will have to wait until FERC is able to seat additional commissioners to meet their quorum of three members to issue orders
• In the meantime, there continue to be more questions than answers about the appropriate federal actions which may mitigate these issues, and there is no shortage of strong opinions on both sides as tensions continue to rise
• Speaking at an industry conference on May 10, Acting Chairman Cheryl LaFleur said “most everyone” agreed that the current situation is unsustainable and that the solution will vary by region. “Where there’s less agreement is on how urgent this issue is,” she said. “You can definitely mark me down in the urgent column.”
• The potential paths, LaFleur explained, include a variety of approaches from carbon pricing, to market design reforms, to eliminating minimum-offer price rules for certain resources
• On a more optimistic note, LaFleur added, “We’re capable of sustaining market benefits and meeting state objectives. I don’t think it is insurmountable.”

Additional Resources

SNL: Industry experts debate reconciling state policies, ‘carbon banana’

Washington Energy Report (Troutman Sanders): FERC Holds Technical Conference

ScottMadden: Energy Industry Update

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