By Suedeen Kelly & Pat Wood
April 11, 2019 at 5:00 am ET
Energy and climate change are back on the agenda in Washington, but so far, the debate is missing an essential issue: competition.
It’s been nearly a generation since power market “restructuring” was a hot topic. As Federal Energy Regulatory commissioners, we were there, guiding a process that led to historical monopolies giving way to competition and consumer choice.
Since then, issues concerning grid operations have become the purview of a relatively small cadre of experts and regulators, while most policymakers in Washington debate more mainstream topics like energy costs, manufacturing jobs, innovation and climate change. But consider this: No matter which of those issues you care about, competition can drive solutions to all of them.
Markets have been a catalyst for grid modernization and an enabling platform to deliver customer value since the 1990s, when voluntary, independent, nonprofit entities were established to operate competitive wholesale electricity markets. States that participate in these regional transmission organizations and independent system operators, currently representing two-thirds of the country, have significantly increased efficiency while lowering customer bills.
Wholesale markets have also facilitated widespread investment in low-cost renewable energy and accelerated the growth of sophisticated demand-response and energy-efficiency technologies. And RTO and ISO regions have continued to ensure reliability, even as the grid has grown more diverse and complex. Even the relatively nascent Energy Imbalance Market in the West — though it has a more limited role than an RTO — has delivered significant benefits; savings for participants have nearly doubled each year since its inception.
Of course, no market is perfect, and wholesale electricity markets are no different. Today, there are growing tensions around a number of sticky issues. In some regions, market outcomes are at odds with state preferences for specific fuel sources. Variations in market design often create barriers for advanced technologies. Ensuring electricity customers have a meaningful voice in RTO decision-making is a growing challenge. And legacy generation assets that are no longer profitable are creating real economic worries for many communities.
In response to these issues, some have called electricity markets a fallacy. Others have suggested a return to vertically integrated monopolies. Both reactions fail to recognize how markets are delivering for customers. Here are two examples.
First, the grid is no longer defined by the features that make natural monopolies workable. The old regulatory compact, whereby vertically integrated utilities provided reliable access to power in exchange for a geographic monopoly and a reasonable rate of return, was premised on a grid characterized by economies of scale and high barriers to entry. But these conditions no longer apply.
Large centralized power plants are increasingly in competition with newer technologies and distributed energy resources that are just as (or more) reliable and cost-effective. Further, as the grid transitions from analog systems to digital platforms, a wide range of smart, connected devices offered by a diversity of providers are revolutionizing energy generation and management. The result is that customers no longer have to choose between reliability and innovation; competitive markets can deliver both.
Second, where monopoly utilities do still exist, they are struggling to deliver what energy customers want. Customers in states with vertically integrated utilities remain at risk for utility commitments to capital projects that turn out to have significant cost overruns or questionable economics. Moreover, an array of customers from tech to retailers to heavy industry to rural electric cooperatives are seeking to break with traditional power companies in order to access cleaner, more cost-effective power that is readily available in competitive markets. Energy customers demand — and deserve — the outcomes that only competition brings.
Whether you’re on the right, left, or anywhere in between; whether you’re an entrepreneur, corporation, environmental advocate, or a residential energy customer — competition matters. For years, we’ve talked about the need for a secure, sustainable, reliable and resilient 21st century grid. If we let electricity competition drive the next energy debate, we may just finally achieve it.
Suedeen Kelly, a partner in the law firm Jenner & Block, served on the Federal Energy Regulatory Commission from 2003-2009. Pat Wood, principal for Wood3 Resources, served as FERC chairman from 2001-2005.
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