On May 1-2, 2017, FERC staff held a technical conference on wholesale energy and capacity market design, focused on markets operated by ISO New England Inc. (“ISO-NE”), New York Independent System Operator, Inc. (“NYISO”), and PJM Interconnection, L.L.C. (“PJM”) (collectively, “Eastern RTOs and ISOs”).  The goal of the conference was to explore the balance between FERC’s regulation of these competitive wholesale markets and recent efforts by states to ensure that certain categories of generating resources receive sufficient revenue to continue operating.  Stakeholders from various sectors of the electricity industry attended to express concern that these eastern organized markets require regulatory intervention of some sort—with a regulatory response from FERC unlikely to take place until at least a three-Commissioner quorum is established.

The two-day conference was FERC’s response to recent concerns over tensions between eastern organized wholesale energy and capacity markets and increasing state policy actions to encourage decarbonizing the electricity generation sector.  For example, in 2016 New York and Illinois established separate compensation programs to bolster financially struggling nuclear generators (see May 2, 2017 edition of the WER) due to concerns that the markets are insufficiently compensating these baseload resources.  Although these programs currently face court challenges and are mired in legal questions following the Supreme Court’s 2016 decision in Hughes v. Talen Energy (see April 27, 2016 edition of the WER), state support for nuclear generators is nonetheless currently being considered in Ohio, Pennsylvania, New Jersey, and Connecticut.

At the conference, supporters and detractors of such state-based support for generators were eager to voice their opinions and advise FERC staff on policy priorities going forward.  Similar to the arguments raised in Hughes and resurfacing again in the New York and Illinois litigation, non-nuclear and non-renewable generators like Dynegy argued for FERC to take a firmer stance against subsidized generators bidding into organized markets.  State regulators such as Illinois Commissioner Brien Sheahan, advocated for a “hybrid” approach by which some state policies could be achieved through regional markets, while others through other state-based action.  For their part, the Eastern RTOs and ISOs have expressed varying levels of concern: with NYISO calling the challenged nuclear generator subsidies in New York “a necessary bridge” on the way to obtaining a market-based carbon pricing mechanism, ISO-NE advocating for a two-step auction process to accommodate state-subsidized generators (see April 25, 2017 edition of the WER), and PJM arguing for member-states to band together to design common policy initiatives that can be priced in the RTO’s wholesale electricity markets.

Although the solutions and policy priorities varied depending on the stakeholder group, a unifying theme among the participants appeared to be dissatisfaction with the status quo in wholesale energy and capacity markets administered by the Eastern RTOs and ISOs.  Nonetheless, due to the current lack of quorum, (see January 31, 2017 edition of the WER) it remains to be seen what next steps will be taken by the Commission.

The conference agenda and participant pre-conference comments can be accessed here.