Regional Organized Power Markets Delivering Value, Innovation, FERC Told

Between 2006 and 2008, natural gas prices were peaking at historic highs, and critics of competitive markets for electricity were citing the resulting high electricity prices as an indicator that the markets had failed. No amount of factual data showing the linkage between natural gas fuel costs and electricity prices could quell the furor in certain quarters.
 
The complaints led members of Congress to ask the U.S. Government Accountability Office (GAO) to investigate whether the organized regional power markets overseen by regional transmission organizations (RTOs) and independent system operators (ISOs) were providing consumer benefits.
The resulting GAO report in September 2008 cited a lack of consensus regarding the benefits of RTO and ISO markets, and directed the Federal Energy Regulatory Commission to develop a common set of metrics to better assess the value of these markets.
 
The first assessment of the RTOs and ISOs under the metrics that FERC subsequently developed is in, and the consensus is clear. The RTO/ISO markets are improving power grid reliability, promoting generation and other efficiencies, improving transparency and accuracy of information, assuring investment is made where and when it is needed, reducing transmission congestion, building infrastructure and keeping prices affordable.
 
That was the message heard January 20 when the chief executives of the nation’s RTOs and ISOs appeared before FERC to outline the metrics findings. The RTOs and ISOs are enhancing reliability and efficiency, and advancing important public policy objectives such as clean energy and energy efficiency, said Stephen Whitley, president and CEO of the New York Independent System Operator.
 
The New York ISO is meeting 6 percent of its installed capacity through innovative demand response resources and generation plant availability has improved from 87 percent (1992-1999) to 94 percent (2001-2007), Whitley reported. Innovation also is evident in terms of improved forecasting tools and integration of innovative energy storage systems such as advanced batteries and flywheels, Whitley added.
 
In New England, demand response was 5 percent of capacity in 2009 and under the region’s capacity market is obligated to provide 10 percent of capacity in 2013, Gordon van Welie, ISO-New England’s president and CEO, told FERC. 
 
After adjusting for fuel price variability, wholesale energy prices have declined since 2005, grid congestion is reduced and emissions that cause smog and acid rain have been lowered significantly, van Welie noted.
 
John Bear, the Midwest ISO’s president and CEO, provided a detailed chart demonstrating the economic value derived by improved grid reliability, better dispatch of generation resources, dynamic pricing, improved generator availability and demand response.
 
“Markets have been very good for renewables and demand-side resources,” reported Terry Boston, PJM Interconnection’s top executive.
Over the past five years, spot market prices for wholesale electricity in the PJM market, adjusted to reflect fuel price fluctuations, have decreased 30 percent, from $30.45 to $21.46, Boston told the FERC commissioners.
 
Overall, the body of facts and the common set of metrics left a favorable impression with the Commission, which will compile the ISO/RTO information into a report to Congress.
 
“The total body of this information validates not only the transparency and efficiency of these organized wholesale electric markets, but also their continuing value to consumers,” FERC Chairman Jon Wellinghoff observed.
 
Much has changed since high prices for natural gas prices spurred Congress to request the GAO investigation of the RTO and ISO markets. Market-driven innovation produced new technology for obtaining natural gas from tight shale formations. The resulting increase in supply, in conjunction with FERC’s good efforts to assure sufficient pipeline infrastructure, have resulted in natural gas prices plunging to historic lows. As a consequence, electricity prices in the ISO and RTO markets have dropped more than 50 percent.
 
One thing that has not changed is that the ISO/RTO markets now as then are delivering real, tangible economic and environmental benefits for consumers. FERC’s metrics should prove an important tool for demonstrating and communicating these benefits to Congress and the public. The facts, not polemics from special interests, should prevail in any objective assessment of the benefits of organized competitive power markets.
 

Joel Malina | January 27, 2011