Footnote:
In: University of Pennsylvania Law Review, Vol. 168, 2020
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 30, 2019 erstellt
Description:
In the 1990s, the Federal Energy Regulatory Commission (FERC) stopped treatingpower generation as a regulated monopoly and supported the development of competitiveelectricity markets. Competition has encouraged innovation and reduced costs, but thepayment system FERC and grid operators developed has struggled to provide low-costelectricity without leaving itself vulnerable to market power abuses. In a payment systembased on marginal costs, generators necessary for grid reliability cannot recover their fixedcosts unless they charge high prices when supply is scarce. However, because these generatorshave market power, permitting them to recover their fixed costs leaves energy marketsvulnerable to market manipulation. To mitigate market power abuses, every grid operatorin the United States has introduced offer caps that limit revenues available in energymarkets. Offer caps can prevent some generators from recovering their fixed costs, leading toa “missing money” problem as critical suppliers are forced out of business and potential newentrants cannot cover their start-up costs. Today, growing penetration of renewables isexacerbating the missing money problem. Regulators and grid operators are responding byadministratively pricing certain resources and supporting specific units deemed too importantto retire. These interventions lead to excess capacity and undermine competitive markets. Asa result, current regulatory responses to the missing money problem recreate the inefficienciesthat competitive markets were designed to solve, and they do so under questionable legalauthority and at the expense of a clean energy grid.Rather than quietly revive cost-of-service rate regulation, this Article argues that FERCshould simplify reserve requirements, stop counteracting state clean energy programs, andsupport the development of competitive markets for services that support grid reliability.Specifically, FERC and grid operators need not administratively reprice resources or forceload-serving entities (LSEs), which distribute electricity to consumers, to transact withspecific generators. Instead, the Commission should support long-term resource procurementmarkets that would be built on top of today’s short-term energy markets. Wholesale marketswould consist primarily of short-term energy dispatch and balancing markets. They wouldnot be relied on to ensure that revenues are sufficient to maintain resource adequacy.If LSEswere permitted to determine for themselves how to comply with resource procurementrequirements, they could balance renewable policies, flexibility needs, and reserve mandates.This approach would maintain reliability while respecting FERC’s jurisdictional limits.Most importantly, it would prevent the Commission from quietly reviving cost-of-serviceregulation in regions that ostensibly abandoned that market structure decades ago