Commissioner Mark C. Christie Statement
June 17, 2021
Docket No. PL21-2-000
Order: E-2
I concur and write separately to add the following.
Today’s Policy Statement[1] reaffirms that voluntary agreements among states to promote transmission development to meet state public policies are not categorically precluded by Commission rules and regulations. Order No. 1000 made clear that states voluntarily could negotiate alternative cost sharing arrangements that are distinct from the relevant regional cost allocation method[2] and that order highlighted a vehicle for multiple states to cooperate, interstate compacts.[3] As the Policy Statement notes, the Commission has accepted certain alternative cost sharing arrangements in the context of Order No. 1000 compliance filings.[4] I would note that voluntary agreements are open to all states without regard to whether they participate in Regional Transmission Organizations (RTOs) or Independent System Operators (ISOs)[5] and they need not be limited in purpose to transmission only. Relevant history illustrates.
RTOs/ISOs[6] were established more than two decades ago during the “restructuring” era that saw about half the states initially adopt some version of policies requiring their vertically-integrated utilities to divest or at least “functionally separate” their generating assets, which were then supposed to compete on price in RTO/ISO markets with independent power producers (“IPPs,” sometimes called “NUGS” for non-utility generators – the acronyms float like confetti in this business).[7]
Importantly, the states which chose to participate in RTO/ISO markets during the restructuring era shared a general consensus that the purpose of RTOs/ISOs was to plan the regional transmission necessary to promote reliability at the least-cost to consumers and to operate energy and capacity markets to provide consumers with least-cost power on a non-discriminatory basis, i.e., without regard to the source of the electrons (sometimes called “economic dispatch”). Federal regulation reflected this consensus about the purpose of RTOs/ISOs.[8]
That consensus no longer exists at either the state or federal levels. The past several years have seen an increasing divergence of public policies in states that are members of multi-state RTOs/ISOs, over such fundamental issues as mandated resource mixes, compensation in capacity markets, transmission planning criteria and cost allocation, and carbon taxes.[9] The disappearance of the original consensus about the purpose of RTO/ISO markets has serious implications across a range of issues, but the adoption of this Policy Statement by the Commission offers a good time to emphasize that states that wish to cooperate with other states which share similar public-policy goals – whether environmental, reliability or economic – have options for achieving regional benefits outside the context of RTO/ISO participation.
In particular, I would point out that while this Policy Statement emphasizes the potential availability of voluntary agreements among states to promote interstate transmission development, voluntary state agreements may also be available for other purposes. Before the restructuring era, many state-regulated utilities participated in multi-state power pools[10] designed to support reliability by wheeling power from state to state when needed to avoid load shedding, as well as facilitating bilateral sales of excess power.[11] These sales would benefit customers of the selling utility, when booked as a customer credit for off-system sales, and benefit customers of the purchasing utility when booked in the “fuel factor” at cost, with no return on equity (ROE) applied.
Options such as these are still available. Through the use of interstate compacts, enabling legislation[12] could create multi-state entities that can plan transmission projects – as this Policy Statement encourages – but such entities also could be designed to function as modern, innovative versions of power pools aligned with the member states’ public policies as to resource adequacy and preferences. The enabling legislation could also ensure a sufficient state role in the governance to ensure that the authority was used only in accordance with member-state policies.[13]
States sharing similar public policies which desire to collaborate with each other to obtain the benefits of regional cooperation have innovative options to explore and consider whether they participate in an RTO/ISO or do not. The adoption of this Policy Statement is a good time to emphasize that opportunity.
For these reasons, I respectfully concur.
[1] State Voluntary Agreements to Plan and Pay for Transmission Facilities, 175 FERC ¶ 61,225 (2021) (Policy Statement).
[2] See Policy Statement at PP 3-4, nn.4-5.
[3] See id. at n.4. Interstate compacts among states must be approved by Congress. U.S. Const. art.1, §10, cl. 3.
[4] Policy Statement at n.5 (citing PJM’s State Agreement Approach as an example of a vehicle by which a state or states may voluntarily pursue transmission projects to fulfill their own individual public policies and bear the costs of such policy-driven projects themselves.).
[5] Technically speaking, state-regulated utilities participate in RTOs/ISOs, subject to state law.
[6] See Regional Transmission Organizations, Order No. 2000, FERC Stats. & Regs. ¶ 31,089 (1999) (cross-referenced at 89 FERC ¶ 61,285), order on reh’g, Order No. 2000-A, FERC Stats. & Regs. ¶ 31,092 (2000) (cross-referenced at 90 FERC ¶ 61,201), aff’d sub nom. Pub. Util. Dist. No. 1 of Snohomish Cty. v. FERC, 272 F.3d 607 (D.C. Cir. 2001). Order No. 2000 was issued in 1999 and established criteria for RTOs/ISOs.
[7] The restructuring era was short-lived. Several states subsequently reversed their earlier decisions and returned to some form of vertical integration. See Tyson Slocum, The Failure of Electricity Deregulation: History, Status and Needed Reforms, Public Citizen’s Energy Program, March 2007, at 5; see, e.g., Ch. 933, 2007 Va. Acts of Assembly (April 4, 2007). Restructuring was sometimes inaccurately called “deregulation,” which implied a move from highly structured cost-of-service regulation to true free markets in power supply, but it was typically more a swap of one complicated regulatory construct for another one just as vulnerable to rent-seeking. See, e.g., Severin Borenstein and James Bushnell, The U.S. Electricity Industry after 20 Years of Restructuring, National Bureau of Economic Research, April 2015, at Abstract (“We argue that the greatest political motivation for restructuring was rent shifting, not efficiency improvements, and that this explanation is supported by observed waxing and waning of political enthusiasm for electricity reform.”); see also id. at 1.
[8] The Energy Policy Act of 2005 provided a definition of economic dispatch: as “the operation of generation facilities to produce energy at the lowest cost to reliably serve consumers, recognizing any operational limits of generation and transmission facilities.” Energy Policy Act of 2005 (EPAct 2005), Pub L. No. 109-58, § 1234(b), 119 Stat. 594, 960 (2005) (codified at 42 U.S.C. § 16432(b)) (emphasis added).
[9] This divergence did not happen yesterday, but has been building. One commentator wrote ten years ago that “. . . state legislation and regulatory choices continue to push the electricity industries of the various states along vastly different paths.” Ari Peskoe, A Challenge for Federalism: Achieving National Goals in the Electricity Industry, 18 Mo. Envtl. L. & Pol’y Rev. 209, 211 (2011) (“Peskoe”) (emphasis added).
[10] For over half a century, PJM was a power pool. See https://pjm.com/about-pjm/who-we-are/pjm-history .
[11] See generally Peskoe at 223-24. Any application to this Commission to establish a power pool or other similar arrangement will, of course, come with its own specific evidentiary record and will be considered individually under applicable laws at the time.
[12] Power pools were generally regulated by the Federal Power Commission, and later by FERC. See, e.g., id. Congress could, however, through enabling legislation, grant various regulatory powers to the requesting states which seek to participate in a power pool arrangement. For example, Congress could include in such grant of authority an explicit power to apply a carbon tax to wholesale transactions in a power pool if such power was requested by the member states, avoiding the many questions attendant to whether RTOs/ISOs themselves have such power. See Carbon Pricing in Organized Wholesale Electricity Markets, 175 FERC ¶ 61,036 (2021) (Christie, Comm’r concurring in part and dissenting in part at PP 12-14, 17-24 (available at https://www.ferc.gov/news-events/news/item-e-2-commissioner-mark-c-christie-concurring-part-and-dissenting-part)).
[13] For an example of such a broad grant of power to the states, Congress in the Energy Policy Act of 2005 allowed three or more contiguous states to enter into a compact, subject to the approval by Congress, to form their own regional transmission siting entities that would have siting authority for those states. EPAct 2005, Pub L. No. 109-58, § 1221(i), 119 Stat. 594, 950 (2005) (codified at 16 U.S.C. § 824p(i)).