Electric Capacity Markets Are Failing the Northeast

This week, Boston welcomes the Quadrennial Energy Review roadshow to town for a stakeholder engagement meeting.

The QER process began in January 2014 when President Obama issued a memorandum directing the administration to translate energy-related policy goals into recommended actions through 2018. Season one of the QER, which ran in 2015, entailed a detailed analysis of the state of our energy infrastructure, and recommendations for infrastructure improvement programs. Season two of the QER will now develop recommendations to make the electric grid more reliable, secure, and environmentally sensitive while keeping electricity rates low.

It is fitting to have the first of the regional season two QER meetings in New England, with a panel on resource adequacy in the Northeast and mid-Atlantic regions. Both regions face serious challenges in maintaining reliability while ensuring affordable electric rates. Most of the challenges result from the region’s electricity capacity markets that are rife with problems. These markets actually impede the creation of new power resources — especially renewables — to meet future demand, while costing customers billions of dollars. In fact, in 2014, 85 percent of new generation capacity was built outside of these broken markets.

The Boston Globe correctly pointed out in a March 15 piece that the most recent New England forward capacity market auction — intended to ensure a reliable energy supply — stuck customers with a $3 billion bill, of which only four percent was for new generation. Renewables accounted for less than one percent of the new generation.

So where is the money going? To the pockets of those who own generation, especially older generation that has already been largely paid for.

Fortunately, lawmakers like Sen. Edward Markey and Rep. Joseph P. Kennedy III recognize that there’s a problem. They led the Massachusetts delegation and other colleagues from the region to urge the ISO-New England, the entity that operates electricity market in the region, and the Federal Energy Regulatory Commission to consider stronger protections for consumers in future capacity auctions, citing the results of February’s forward capacity auction.

The lawmakers expressed their frustration that current policies do not provide electric reliability at just and reasonable rates for consumers. They are also spearheading bills in Congress that will allow consumer advocates to have a voice in FERC decision-making.

With the QER in New England, I hope our nation’s energy leaders will take a hard look at what’s going on in New England and the neighboring markets in New York and the mid-Atlantic, and act to ensure fair rates for all American consumers. That can only happen when our capacity market structure is completely overhauled.