POWER July 2020 - 48

COMMENTARY
Competitive Markets
and Environmental Goals-
Yes, They Can Coexist
David R. Hill
W
hile the nation is rightfully consumed with responding
to the COVID-19 crisis, other battles are being fought
that also will have decades-long consequences. One
of those involves states seeking to override the competitive
wholesale power markets in order to pursue their low-carbon
and other environmental objectives. Their fight is against the
Federal Energy Regulatory Commission (FERC), which wants
to defend the competitive power markets and the consumer
benefits it believes those markets offer.
But policymakers and consumers don't have to choose between
low-carbon energy sources and competitive power markets.
It's possible to have both. Consumers should insist they
get both.
The stakes are high. Americans spend more than $400 billion
annually on residential, commercial, and industrial electricity-or
about $1,200 per person. Especially given the current
economic situation, it is critical that businesses and residential
customers pay a reasonable price for their power. At the same
time, and as my Columbia University colleagues have noted,
nothing including a pandemic should distract from the importance
of addressing climate change.
The current tension between federally regulated competitive
power markets and state-mandated carbon reduction objectives
is often painted as a battle between a FERC controlled
by Trump administration appointees and states controlled by
Democratic governors and legislators. But it really is possible
for environmental objectives and competitive markets to coexist.
Environmental objectives can and should be pursued
through the competitive power markets, not around them.
Competitive Markets Keep Costs Down
Large parts of the country participate in competitive wholesale
power markets regulated by FERC. Those markets originate
from a unanimous bipartisan FERC order issued in 1996
that required " open access " for the nation's electric transmission
system. FERC opened up this system to " remove
impediments to competition in the wholesale bulk power
marketplace and to bring more efficient, lower cost power to
the nation's electricity consumers. "
FERC's pro-competition order responded to years of increasing
consumer dissatisfaction with the cost of decisions
by regulators and utilities to invest billions of dollars in large
coal and nuclear power plants. Those plants had seemed like
a good idea at the time, but times change. Cost overruns
and excess generation resulted in massive costs being imposed
on consumers, and policymakers from both parties
saw competitive markets as an effective way of addressing
these problems.
This solution is now at risk. Some states have moved to address
climate change and other objectives by enacting mandates
and subsidy programs for renewables, nuclear facilities,
48
and other types of generation. Some of these programs seek to
override or replace the wholesale competitive power markets.
FERC views many of those efforts as intruding on areas of
exclusive federal jurisdiction and interfering with price-setting
mechanisms intended to benefit consumers. As a result, FERC
has issued orders-including one involving the 13-state PJM
Interconnection power market-that impose " minimum offer
price rules " to preserve the wholesale competitive markets.
This federal-state tension is causing a lot of regulatory uncertainty,
litigation, and unnecessary costs. It also means neither
environmental objectives nor competitive market objectives
are being met in the best possible way.
Competitive Markets Can Also Support
Environmental Goals
Consumers should insist on something better. The mechanism
policymakers settled on in the 1990s to ensure consumers
receive lower-cost power-that is, competitive markets-still
works today. In PJM alone, competitive markets save Americans
between $3.2 billion and $4 billion annually. Neither climate
change nor COVID-19 has repealed the laws of supply
and demand or the principles of how markets work.
Of course, the urgency of addressing climate change is as
great or greater than ever, and competitive markets should better
incorporate and take account of state environmental objectives.
Markets really can be successfully adapted to meet both
environmental and competitive market objectives.
There are a variety of ways in which important electric power
attributes-performance, reliability, emissions, etc.-can be
priced and purchased in a competitive wholesale electric power
market. And there doesn't need to be a one-size-fits-all solution
for all parts of the country or how environmental objectives are
accomplished through these markets. For example, forward
clean energy markets, embedding a price of carbon, and clean
energy standards are all ways in which environmental objectives
can be pursued through competitive markets.
Competitive wholesale power markets are the best means
for eliminating backroom deals and delivering power to consumers
at the lowest reasonable price, with optimum reliability
and environmental performance. If the markets aren't
doing that, the solution is to fix the markets, not to try to
override them.
Policymakers seeking to lower the emissions of their power
sector should keep in mind the lessons of the past. A marketbased
solution, not one based on command and control, will
best create the power system and the change we need. ■
-David R. Hill is an attorney and senior research scholar
at Columbia University's Center on Global Energy Policy.
He previously served as executive vice president and
general counsel of NRG Energy Inc., and general counsel
of the U.S. Department of Energy during the
George W. Bush administration.
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POWER | July 2020
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POWER July 2020

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