With the presidential campaigns debating the future of oil, gas and renewables in the United States, what role should power generation and electricity markets play in the energy policy discussion? During today's OnPoint, Bill Massey, a former FERC commissioner and current counsel to the COMPETE Coalition, explains why he believes organized wholesale electricity markets can help the United States meet its economic, energy and environmental needs.
Monica Trauzzi: Hello, and welcome to OnPoint, I'm Monica Trauzzi. Joining me today is Bill Massey, former FERC commissioner and currently a counsel to the COMPETE Coalition and a partner at Covington & Burling. Bill, it's great to have you back on the show.
William Massey: It's good to be here, Monica.
Monica Trauzzi: Bill, with so much focus on energy in this year's presidential campaign, is enough attention being given to the role of electricity markets and power generation in helping to meet the US' energy demands and possibly getting to that all of the above strategy?
William Massey: Probably not. I think it's understandable because electricity tends to be a somewhat down in the weeds subject. But the electric power industry is perhaps the largest industry in the country, and efficiencies that could be gained in the electric power industry would flow through the economy state by state and make our nation more competitive as a whole. You introduced me as representing the COMPETE Coalition. What we stand for is the proposition that electricity markets, well structured electricity markets, are in the national interest and benefit customers. And there's now a large body of evidence to support this. And our view is moving to markets would create efficiencies all over the country that both presidential candidates could be proud of.
Monica Trauzzi: So what has the last decade of experience shown us about organized wholesale electricity markets?
William Massey: The last decade of experience has shown us that these large independent market platforms and the independent unbiased nature of their operations is critical, but that they have provided a platform for a wide range of innovative services such as wind, demand response, that they are a very welcoming place for investment in generation and other services. Our customer members at COMPETE, and we have about 180 large customer members such as Walmart, Safeway, Leggett & Platt, tell us that they would much prefer to do business in competitive markets. They really like the organized competitive markets because they understand that a well-structured wholesale market is essential for a well-structured retail market. So they like the variety of services, they like the customer focus, they like the innovation, they like the renewable resources that are flocking there. And there now is a large body of evidence that these markets are providing very broad benefits, including price benefits. And if I could share some price data with you, I have my little cheat sheet here. We took a look at the EIA data, Energy Information Administration of the United States Department of Energy, we took a look at their data going back 15 years, from 1997 through 2011. And we looked at the rate of electricity rate increases, and we compared the states within the RTOs to the states outside the RTOs. And what we discovered my surprise you. Overall, adjusted for inflation, the real rate increase in the RTO states, there are 26 of them, was 2.2 percent. In the non-RTO states it was 8.5 percent, which is a 6.3 percent difference going to the RTO states. And I can provide a lot more data than that. But even with respect to prices, because of the fierce competition in these RTO markets, prices are being driven down. And in PJM Interconnection, prices have actually decreased 1 percent over that last 15 years when adjusted for inflation.
Monica Trauzzi: We talk so much about renewables and certainly the presidential candidates have as well. How does this all tie in to the push to expand renewables in the US and distribute them?
William Massey: Yes, well the RTO markets have been a magnet for renewable resources. About 75 percent of the wind resources are now in the RTO markets. Why, you might ask. Well, renewable resources like the open architecture, they like the broad reach. If you're a wind producer and you're in the largest organized competitive market in the world, the PGM Interconnection, you know that market, 150,000 megawatts, has the capability to deal with the variability of wind. So these markets are providing an attractive venue for renewable resources. Our view also is that if a state wants to move to a renewable energy standard, a clean energy standard, whatever you want to call it, they used to be called RPS, renewable portfolio standards, but if a state chooses to move in that direction you can fill that standard with competitive solicitations, competitive markets. So our view is that competitive markets are the best way to drive down costs, because you have a lot of new entrants that are vying for the customer's business. And our view is that our country's lofty renewable goals can be well achieved by well-structured competitive electricity markets, whatever the model is in each individual state.
Monica Trauzzi: And you believe that there's an incentive here also for innovators to implement advanced technologies in these RTOs and ISOs, that there's a benefit to them?
William Massey: Absolutely. If you just think about it, markets are designed to attract new entrants. I call them the barbarians at the gate, and that's not a pejorative term. They're like the independent power producer industry was 25 years ago, banging at the gate saying, "Let us into the marketplace where we can serve." And Congress and FERC heard them, and they now provide about 40 to 45 percent of our electricity. There are a lot of other new entrants now banging at the gates in a number of states saying, "Let us into these markets. Let us serve customers," be they demand-response aggregators with very sophisticated new technologies like Viridity Energy and ECS and Converge; they might be advanced storage technologies; they might simply be new suppliers that are willing to offer a variety of creative products to customers, like hedging products, contracts of different lengths, green products. And so, yes, it is true in every industry that has moved to competitive markets. Markets attract new entrants that want to serve and have a customer focus and they're simply saying, "Let us into the market." When you have a variety of new entrants, when you have a variety of services being offered, lots of flexibility. Our 180 customer members of the COMPETE Coalition say, "That's where we want to be."
Monica Trauzzi: All right, it's an ongoing discussion throughout the country. We'll end it there. Thank you for coming on the show.
William Massey: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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