Who Is in Charge When You Flip the Light Switch?

January 12, 2021 | 9:58 am
Mike Jacobs
Senior Energy Analyst

A power struggle for control and governance of the power grid is going on right now. States that had let go of some decisions are standing up to utilities in the name of climate and consumer protection. In the week following the attack on the US Capitol, states are working together in the Mid-Atlantic region, and utility oversight is under review in New England.  These efforts from the states call into question whether the utilities can govern themselves in a time of such change.

The utility industry is facing a new wave of competition, and some monopoly practices do not die easily. Twenty-five years ago, the states were opening access for consumers to buy electricity from newly emerging competitors, while carving out a place for renewable energy to get started. Today thirty states are well down the road with renewable energy requirements, with very significant goals for cutting climate-damaging emissions. All this competition has led to some utilities to take matters into their own hands, with dark money and scandalous bribery.  We would be wise to review the protections for corruption and undue influence in regions where the utility sector relies on self-governance and lighter regulation.

What is at stake?

There is a lot at stake with the governance and regulation of electric companies. Companies make commitments in the hundreds of millions of dollars on power plants (and sometimes billions on gas pipelines), while carbon emissions from fossil fuel burning is leading to destructive climate change. When companies try to protect uneconomic investments or extend the market for fossil plants in the face of cheaper clean energy, we have seen attacks on the integrity of legislatures, criminal prosecutions and doubts about utility self-governance.

In New England, while states are gearing up public debates (January 13 & 25) to redirect the regional grid administered by ISO-New England and self-governed by NEPOOL (i.e. New England Power Pool, a voluntary association of companies in the utility business), ISO-NE is preparing for a vote to remove from its rules one of the means for reporting and punishing wrongdoing by companies in the ISO-NE market.

Limits of self-governance

UCS thinks now the attention should be on looking for gaps in self-governance, especially with the pressures on companies to protect against competition. The governance of the New England electricity market is provided under the NEPOOL Agreement. This agreement defines the roles and rules for member companies in the governance of the New England regional market but does not have protections for misconduct outside of the markets.

The governance of the regional market is of such importance in this era of energy transition that the New England States Vision Statement (released in October by the New England States Committee on Electricity (NESCOE)) dedicates 1/3 of the text to matters of governance.  The New England states have been moving together with efforts on renewable energy but have come to see the governance of ISO-NE through NEPOOL requires change. This is now leading to public meetings led by the States and some engagement by the leadership of ISO-NE on the topic.

Make no mistake about the extreme measures utilities are willing to take to keep their businesses from changing.  Non-market misconduct by utilities, such as Exelon in Illinois and First Energy in Ohio, and the use by Entergy of an unidentified agent in the Mid-continent ISO’s stakeholder process, demonstrate the need for protections from undue influence. At present, ISO-NE and NEPOOL have no provisions for addressing improper influence in the regional self-governance structure for the New England energy market.

“Urgent dialog” needed

In the Mid-Atlantic and Ohio Valley, thirteen states plus DC between Illinois and New Jersey, and south to include part of North Carolina, seek accommodation and engagement with the regional grid operator PJM.  In this region, the state utility regulatory agencies form the Organization of PJM States Inc (OPSI). On Friday, OPSI sent a letter Friday to PJM’s board calling for “an urgent and constructive dialog with PJM about immediate concerns as well as “what’s next” for resource adequacy across the PJM footprint.” Ensuring resource adequacy (i.e. counting the supply that meets the peak demands) is a state responsibility that has been delegated to the PJM administered “capacity market.” Same delegation has happened in New England with ISO-NE.

Are these the new monopolies?

ISO-NE and PJM are utility companies. (Check the Federal Power Act definition if this is a surprise.) The deregulation impulse gave them considerable authority, and a self-governance structure. They are controlled by the many utility companies that vote in that governance. That governance includes small consumer-owned utilities and independent generating utilities, too. There is tension, competition and trades between and amongst them all. But the role of the states has been diminished by the rise of the ISOs. The states’ role is indirect and outside of the governance of these ISOs.

We are seeing the states turning their attention back to the utilities. This might be a positive, collaborative effort. It might be a struggle. As it comes, we must have our eyes open wide.