GATT/WTO/FTA/TPA: Promises and Evolution
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2
5
,
2
0
2
1
Rob Gramlich
Clients: states; large energy buyers; developers and associations of renewable energy, storage,
grid-enhancing technologies, and transmission infrastructure; national labs; consumer advocates;
environmental NGOs; universities.
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:
“will increase both the capacity price… as well as the already
extensive quantity of redundant capacity... It is a bailout,
plain and simple.”
“It is not hard to understand why states across the region
are losing confidence in the Commission’s ability to ensure
resource adequacy at just and reasonable rates.”
“any state regulation that increases or decreases the
number of generation facilities will, through the law of
supply and demand, inevitably affect wholesale rates. But
the existence of such cross-jurisdictional effects is not
necessarily a “problem” for the purposes of the FPA.”
2
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“
i
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.
”
•
In most markets, most transactions are
outside
of central exchanges.
T
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d
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“
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4
“[I]n a competitive market, where neither buyer nor seller has significant
market power, it is rational to assume that the terms of their voluntary
exchange are reasonable, and specifically to infer that the price is close to
marginal cost, such that the seller makes only a normal return on its
investment.” Tejas Power Corp. v. FERC, 908 F.2d 998, 1004 (D.C. Cir. 1990)
Limit FERC/RTO interventions to mitigating market power
Give up on the “idealized vision of markets free from the influence of
public policies…” which “does not exist.” –Former FERC Chairman Norman
Bay
Recognize that compensation to surplus resources that have been
displaced is unjust and unreasonable. Risks are on investors, remember? (its
ok to feel bad for them though)
Expect to have low capacity prices until supply and demand come back in
balance
F
o
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h
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p
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•
Offshore wind, hydro, existing nuclear, distributed resources
•
These are all carbon-free, and bring a variety of economic and other
developments that are not for ISOs or FERC to judge
•
D
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•
Retail competition, full or partial
•
Vertically integrated utilities
•
Public power
•
Competitive solicitations
•
Long-term contracts
•
R
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.
5
F
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:
a
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•
bid-based security constrained economic dispatch, locational prices,
financial transmission rights, scarcity pricing
•
Scarcity pricing is true value-based pricing, attracts flexibility, discourages free
riding by those who do not procure in advance
•
NO ONE PAYS THE SCARCITY PRICE IF THEY PROCURE IN ADVANCE
•
Centralization IS needed in real-time due to real-time power flows and
need to honor security constraints
•
N
O
T
“
e
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”
(
p
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)
•
Long-term contracts are key (see slide 8)
•
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F
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.
6
S
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t
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t
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q
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:
w
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a
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n
g
“
D
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k
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f
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a
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”
:
M
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w
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+
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(
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)
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:
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,
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M
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3
,
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F
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,
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,
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k
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/
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.
,
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r
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/
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,
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B
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,
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A
,
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I
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,
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s
t
u
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s
7
S
e
v
e
n
t
h
,
i
m
p
l
e
m
e
n
t
f
o
r
w
a
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c
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r
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t
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q
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a
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a
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u
p
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c
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t
f
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a
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c
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s
u
p
p
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y
•
S
e
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W
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a
k
p
a
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r
i
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N
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P
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p
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s
s
,
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w
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P
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r
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t
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•
C
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R
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s
w
h
a
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e
s
t
a
t
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s
w
a
n
t
•
Evolution of capacity markets
•
C
o
u
l
d
b
e
i
m
p
l
e
m
e
n
t
e
d
b
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s
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a
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r
a
t
h
e
r
t
h
a
n
R
T
O
•
Requires residual capacity market, or “Fixed Resource Requirement” opt out
•
States may wish to oversee the procurement by themselves or join with other states.
•
If states or load-serving entities fail, they pay scarcity-based prices. Like a speeding ticket.
•
E
n
v
i
r
o
n
m
e
n
t
a
l
a
t
t
r
i
b
u
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s
a
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d
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,
b
u
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d
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d
o
r
u
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b
u
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d
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d
,
a
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e
d
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t
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o
n
o
f
s
t
a
t
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s
•
L
o
n
g
-
t
e
r
m
c
o
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t
r
a
c
t
i
n
g
f
o
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f
l
e
x
i
b
i
l
i
t
y
p
r
o
d
u
c
t
s
(
r
e
l
i
a
b
i
l
i
t
y
/
a
n
c
i
l
l
a
r
y
s
e
r
v
i
c
e
s
)
a
s
w
e
l
l
.
•
R
e
d
e
f
i
n
e
p
h
y
s
i
c
a
l
m
e
t
r
i
c
s
•
All hours matter, not just peak. Move beyond peak reserve margin.
•
Determine which periods are of particular concern with RTO, DOE, national lab analysis
•
C
o
u
l
d
b
e
p
h
y
s
i
c
a
l
o
r
f
i
n
a
n
c
i
a
l
(
e
.
g
.
,
c
o
n
t
r
a
c
t
f
o
r
d
i
f
f
e
r
e
n
c
e
s
)
•
Settled at physical spot market prices
•
C
o
u
l
d
b
e
v
o
l
u
n
t
a
r
y
o
r
m
a
n
d
a
t
o
r
y
•
Voluntary works if competitive retail suppliers are regulated by the state to be sufficiently
credit-worthy and have appropriate incentives. State PUCs have licensing authority.
8
I
c
a
r
u
s
:
N
o
t
t
o
o
h
i
g
h
o
r
l
o
w
E
i
g
h
t
h
,
p
l
a
n
t
r
a
n
s
m
i
s
s
i
o
n
•
I
n
c
o
r
p
o
r
a
t
e
f
u
t
u
r
e
f
u
e
l
m
i
x
•
Including offshore wind, imports, remote renewables
•
M
u
l
t
i
-
b
e
n
e
f
i
t
•
De-silo reliability, economics, public policy
•
R
e
g
i
o
n
a
l
S
t
a
t
e
C
o
m
m
i
t
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e
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d
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c
i
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e
o
n
c
o
s
t
a
l
l
o
c
a
t
i
o
n
9
The promises made by GATT/WTO members, the transition from GATT to WTO, and the key differences between these trade organizations. Explore the principles of non-discrimination, tariff commitments, and trade distortion prevention. Delve into the expanded scope of WTO rules post the Uruguay Round.
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Presentation Transcript
Common Markets and Diverse States Common Markets and Diverse States An Eight An Eight- -Fold Path to Liberation from Never Fold Path to Liberation from Never- -Ending Cycle Ending Cycle NESCOE NESCOE January 25, 2021 January 25, 2021 Rob Gramlich Clients: states; large energy buyers; developers and associations of renewable energy, storage, grid-enhancing technologies, and transmission infrastructure; national labs; consumer advocates; environmental NGOs; universities.
First, escort the elephant out of the room First, escort the elephant out of the room End broad MOPR End broad MOPR FERC Chairman FERC Chairman Glick: Glick: will increase both the capacity price as well as the already extensive quantity of redundant capacity... It is a bailout, plain and simple. It is not hard to understand why states across the region are losing confidence in the Commission s ability to ensure resource adequacy at just and reasonable rates. any state regulation that increases or decreases the number of generation facilities will, through the law of supply and demand, inevitably affect wholesale rates. But the existence of such cross-jurisdictional effects is not necessarily a problem for the purposes of the FPA. Commissioner Clements: Commissioner Clements: I strongly disagree with the imposition of a strict minimum offer price rule. I believe the Commission must look forward, past the false dichotomy that implies that we must choose to either protect the markets within the Commission s jurisdiction or to accommodate state public policy goals. I hope to immediately engage with my colleagues to work with states 2
Second, avoid contortions just to avoid MOPR Second, avoid contortions just to avoid MOPR Unnecessary centralization to put products in the market. Unnecessary centralization to put products in the market. In most markets, most transactions are outside of central exchanges. Might result in FERC jurisdiction over Might result in FERC jurisdiction over environmental attributes environmental attributes They don t undo MOPR anyway They don t undo MOPR anyway Puts more than necessary through biased Puts more than necessary through biased governance process governance process Hard to align all state policies with common Hard to align all state policies with common product definitions (RECs, product definitions (RECs, ZECs,etc Better to simply s Better to simply solve the problem olve the problem-- --end broad MOPR ISO ISO- -NE should file with FERC to end MOPR and CASPR before FERC has to do it NE should file with FERC to end MOPR and CASPR before FERC has to do it ZECs,etc) ) end broad MOPR 3
Third, do not replace MOPR Third, do not replace MOPR [I]n a competitive market, where neither buyer nor seller has significant market power, it is rational to assume that the terms of their voluntary exchange are reasonable, and specifically to infer that the price is close to marginal cost, such that the seller makes only a normal return on its investment. Tejas Power Corp. v. FERC, 908 F.2d 998, 1004 (D.C. Cir. 1990) Limit FERC/RTO interventions to mitigating market power Give up on the idealized vision of markets free from the influence of public policies which does not exist. Former FERC Chairman Norman Bay Recognize that compensation to surplus resources that have been displaced is unjust and unreasonable. Risks are on investors, remember? (its ok to feel bad for them though) Expect to have low capacity prices until supply and demand come back in balance 4
Fourth, respect state choices Fourth, respect state choices Different resource preferences Different resource preferences Offshore wind, hydro, existing nuclear, distributed resources These are all carbon-free, and bring a variety of economic and other developments that are not for ISOs or FERC to judge Different market structures Different market structures Retail competition, full or partial Vertically integrated utilities Public power Competitive solicitations Long-term contracts RTOs, market monitors, and FERC should RTOs, market monitors, and FERC should advise makers, but not over makers, but not over- -rule or interfere. States should listen. rule or interfere. States should listen. advise state policy state policy 5
Fifth: adopt best practice spot markets Fifth: adopt best practice spot markets to accommodate a variety of state structures and environmental preferences to accommodate a variety of state structures and environmental preferences Best practice spot markets Best practice spot markets bid-based security constrained economic dispatch, locational prices, financial transmission rights, scarcity pricing Scarcity pricing is true value-based pricing, attracts flexibility, discourages free riding by those who do not procure in advance NO ONE PAYS THE SCARCITY PRICE IF THEY PROCURE IN ADVANCE Centralization IS needed in real-time due to real-time power flows and need to honor security constraints NOT energy NOT energy- -only only (pejorative term) Long-term contracts are key (see slide 8) Environmental policies and retail competition policies set by state Environmental policies and retail competition policies set by state and/or federal policies, without RTO/FERC interference. and/or federal policies, without RTO/FERC interference. 6
Sixth, take energy adequacy seriously Sixth, take energy adequacy seriously northern climate: winter high load from electric heating northern climate: winter high load from electric heating Dunkelflaute Dunkelflaute : Multi : Multi- -Day periods of low Day periods of low wind+solar wind+solar and high load (high net load). and high load (high net load). Source: Clack, VCE, Minnesota/Eastern Interconnection study. See also E3, EFI, VCE, Brattle, Jenkins/MIT et al., Source: Clack, VCE, Minnesota/Eastern Interconnection study. See also E3, EFI, VCE, Brattle, Jenkins/MIT et al., Gridlab Berkeley, NREL, LBNL, IEA, ESIG, other studies Berkeley, NREL, LBNL, IEA, ESIG, other studies Gridlab/UC /UC 7
Seventh, implement forward contracting Seventh, implement forward contracting for energy adequacy and to support low for energy adequacy and to support low- -cost financing of supply See Wolak paper in NEPOOL process, and works of Peter Cramton See Wolak paper in NEPOOL process, and works of Peter Cramton Could be implemented by RTO, if that is what the states want Could be implemented by RTO, if that is what the states want Evolution of capacity markets Could be implemented by states rather than RTO Could be implemented by states rather than RTO Requires residual capacity market, or Fixed Resource Requirement opt out States may wish to oversee the procurement by themselves or join with other states. If states or load-serving entities fail, they pay scarcity-based prices. Like a speeding ticket. Environmental attributes and energy, bundled or unbundled, at the discretion of states Environmental attributes and energy, bundled or unbundled, at the discretion of states Long Long- -term contracting for flexibility products (reliability/ancillary services) as well. term contracting for flexibility products (reliability/ancillary services) as well. Redefine physical metrics Redefine physical metrics All hours matter, not just peak. Move beyond peak reserve margin. Determine which periods are of particular concern with RTO, DOE, national lab analysis Could be physical or financial (e.g., contract for differences) Could be physical or financial (e.g., contract for differences) Settled at physical spot market prices Could be voluntary or mandatory Could be voluntary or mandatory Voluntary works if competitive retail suppliers are regulated by the state to be sufficiently credit-worthy and have appropriate incentives. State PUCs have licensing authority. 8 cost financing of supply Icarus: Not too high or low Icarus: Not too high or low
Eighth, plan transmission Eighth, plan transmission Incorporate future fuel mix Incorporate future fuel mix Including offshore wind, imports, remote renewables Multi Multi- -benefit benefit De-silo reliability, economics, public policy Regional State Committee decide on cost allocation Regional State Committee decide on cost allocation 9
