FERC commissioner worries about possible 'flaw' in Northeast regulatory model

While highlighting what he said is a "lack of adequate infrastructure" in New England, Tony Clark, a member of the Federal Energy Regulatory Commission, also told U.S. Senator Jeanne Shaheen, D-N.H., in an Oct. 15 letter that he is concerned that "there is a deeper flaw in the existing electricity regulatory regimes in place throughout the Northeastern United States."
 
Shaheen sent a letter to FERC in September in which she urged the commission to "remain vigilant and ensure that energy markets are functioning properly" (see Public Power Daily, Oct. 7, 2014).

In his response to Shaheen’s letter, Clark said he shared the senator’s concern about energy costs in New Hampshire and New England. "I also appreciate your encouragement to FERC to remain vigilant in its oversight of energy markets," Clark wrote. "Markets that are free from manipulation and the exercise of market power are important in ensuring that consumers and businesses receive energy at just and reasonable rates," he said.
 
"Your letter also references what I believe is the key issue for the New England region in its attempt to reduce its high cost of energy; namely, the lack of adequate infrastructure to support the rapid changes in the region’s resource mix," Clark said.

"I am concerned, however, that there is a deeper flaw in the existing electricity regulatory regimes in place throughout the Northeastern United States," the FERC commissioner wrote. 

He said the region has "overwhelmingly restructured" the regulation of its electricity industry. "In so doing, the region relies on a merchant generation fleet that is dependent on functioning wholesale markets to provide accurate price signals," wrote Clark. These market signals, he said, are used by existing generators to decide whether to continue operations and further invest in existing units.

"Developers also depend on accurate prices to determine where, when, and what kind of resources to build," Clark said. "By virtue of the Federal Power Act, these wholesale markets are under the purview of FERC. At the same time I note that many of the states in the region also still engage in some degree of central planning of their utilities’ resource mixes just as is done in traditionally regulated states."

Clark said that he is concerned that this model "is unworkable and unsustainable." He believes "either an ‘all-in’ restructured model or a traditional, vertically-integrated utility regulatory model can work for the benefit of consumers. The experiences of places as diverse as ERCOT (Electric Reliability Council of Texas), the Southeast, the Midwest and the West would seem to bear this out."

The one regulatory model "that does not appear to be working well is one in which a market is created to procure resources for unbundled utilities, but then the pricing signals in the market are undermined by policies designed to select energy resource mixes through legislative or regulatory planning," wrote Clark.

"I say this not to point fingers," the FERC commissioner said. "I believe state leaders are simply attempting to address the concerns of their respective constituencies. At the same time, I believe FERC has attempted to create mechanisms to ensure the proper functioning of wholesale energy markets. It is the tension between these regulatory regimes which is the crux of my concern. I raise the issue to highlight what I believe to be a situation that is not sustainable."

Because federal and state jurisdictions "each implicate the work of the other, we must strive to ensure that our work is not at cross purposes," Clark said. "A path forward will entail a high degree of collaboration between leaders in the Northeast and FERC to find workable solutions to address the energy challenges in this region of the country. In that endeavor, I look forward to working with you and other interested parties," Clark told Shaheen.