Advanced Energy Perspectives

One of the simplest concepts governing the electric power system for more than half the country – competitive wholesale markets deliver reliable power at the best price for customers – is also among the most complex in practice. Our nation’s system of  Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) proves that. Navigating the world of RTOs and ISOs can be challenging, but participating in the markets they manage is critical to the success of advanced energy companies. AEE’s recent webinar, “Everything You Wanted to Know about RTOs But Never Could – Until Now,” moderated by AEE General Counsel and Managing Director Jeff Dennis, dug into how RTOs and ISOs operate and how to utilize AEE’s PowerSuite platform to track, navigate, and participate in RTO/ISO processes.

On September 18, the Federal Energy Regulatory Commission (FERC) issued Order No. 2222, a long-awaited order setting the stage for aggregations of distributed energy resources (DERs) to participate on a level playing field in the wholesale markets operated by Regional Transmission Organizations and Independent System Operators (RTOs/ISOs). Adoption of these small, flexible, customer-sited resources has proliferated across the United States, primarily driven by customer demand, technology improvement, and falling prices. However, DERs have been largely left out of U.S. wholesale power markets. FERC’s order embraces these market trends and directs RTOs/ISOs to remove market barriers and allow aggregated DERs to compete. That opens the door for new revenue streams for DER owners, new business models for DER aggregators, and new flexibility for the grid. But realizing this potential will depend on how RTOs/ISOs implement the order.

The decline of coal has been well documented over the last decade, as it has gone from the majority electricity resource in the United States to less than a third of current power generation. At the same time, there have been many policy attempts to stop the retirement of uneconomic coal. For the first two years of the Trump Administration, several attempts were made – including use of the now-famous Defense Production Act – to bail out coal plants across the country. And some state legislatures – most notably in Indiana – have tried to keep utilities from transitioning from coal to advanced energy solutions. Now, the practice of “self-scheduling” coal plants – i.e., running them even when they are not the cheapest resource available for customers – is emerging as a coal-protection mechanism, especially in the MISO and SPP markets. In the first half of 2020, several state commissions, including the Indiana Utility Regulatory Commission, have begun to more closely review whether utilities under their jurisdiction engage in this practice. In July, Advanced Energy Economy intervened in an Indiana proceeding to argue against Duke Energy Indiana’s self-scheduling practice and teamed up with Berkeley Research Group to show how advanced energy resources can replace these coal plants and save Indiana ratepayers hundreds of millions of dollars.  

Frustrated by recent decisions from the Federal Energy Regulatory Commission (FERC) and dismayed to see their policy objectives undermined by wholesale market rules, a growing number of states are considering taking matters into their own hands. Specifically, in response to FERC’s rulings disadvantaging resources that benefit from state clean energy policies, some states in PJM Interconnection and ISO New England, along with New York, are considering alternatives to centralized capacity markets – including leaving these markets altogether. An AEE background paper released last week cautions that leaving an independently operated capacity market is no quick fix for the curve balls FERC has thrown at states. Rather, leaving centralized capacity markets is a fraught choice that should be pursued only if all other potential pathways have been thoroughly exhausted. Make no mistake – the current FERC majority is attempting to undermine clean energy and state choices. Even in the face of that threat, though, states would be better off working with RTOs/ISOs and other stakeholders to identify reforms to energy, ancillary services, and capacity markets to align them with state clean energy policies, rather than undermine them.

Friction between organized wholesale electricity markets operated by Regional Transmission Organizations and Independent System Operators (RTOs/ISOs) and the trend – driven by policy, technology, and market forces – toward cleaner energy options have generated plenty of headlines in recent years. The barriers to entry that advanced energy technologies sometimes face in wholesale markets have come into stark relief, as federal policies like the Federal Energy Regulatory Commission’s (FERC) Minimum Offer Price Rule (MOPR), legacy market rules and market designs, and efforts to use the levers of federal power to prop up aging uneconomic power plants and put new regulatory barriers in front of clean energy resources collide with rapidly increasing state and customer ambitions to switch to clean energy.    

Despite these conflicts, competitive wholesale markets have still shown themselves to be a platform to integrate new technologies, increase transparency, and harness competitive forces over broad geographic regions to scale development of low-cost advanced energy technologies, improve customer access to those technologies, and replace uneconomic existing fossil fuel plants. FERC opened these markets to full participation by energy storage resources with its Order No. 841, creating a 40 GW opportunity to scale up development of technology that will be instrumental in the 100% clean energy grid of the future. And outside of FERC, RTO/ISO stakeholder processes are moving ahead on their own to reform market rules and operating practices to integrate transformative hybrid solar/wind-plus-storage power plants and consider a role for carbon pricing in the markets, providing a forum for discussions and market design progress not available in other regions.