Issue No. 7 – December 16, 2021

Published

The Electricity Reality Report provides readers like you with news and timely analysis on policies, markets, and technology trends that affect our nation’s ability to power American homes and businesses with reliable low cost energy.

In today’s issue:

  • New study shows that in states with competition in electricity, carbon emission reductions are one-third greater.
  • The research confirms other studies, including one in September by PRI.
  • Pennsylvania celebrates 25 years of competition, helping the state go from number 9 for the highest industrial electric costs to number 30.Meanwhile, in neighboring New Jersey, a grandiose energy plan is raising opposition.
  • Who should get the “Vogtle Award” for mismanagement and cronyism?
  • A consumer revolt in Virginia against a monopoly electricity provider could lead to change at last.
  • A corruption scandal strikes the nation’s largest municipal utility.

States With Competitive Energy Wholesale Markets ‘Have Done a Better Job at Reducing Carbon Emissions

An important new report by Dr. Joshua Rhodes of the University of Texas at Austin and three co-authors has concluded that, “across the U.S., regions with competition in their electricity sector have done a better job at reducing carbon emissions than those regions that are under monopoly control.”

The authors began their study by positing that “economic logic” favors competitive wholesale markets for electricity over monopolists because of four powerful pathways.

First, markets in nearly all sectors “promote innovation and new technology adoption” simply because businesses need to innovate to get an edge over their competitors.

Second, technologies such as wind and solar have very low marginal costs (in other words, it costs nothing or next to nothing to increase their use in generation) – as opposed to monopoly plants “that have higher marginal costs, such as coal.”

Third, market designs can include systems to address externalities – that is, environmental costs, such as pollution.

And, fourth, markets “reflect consumer preferences,” as opposed to monopolies, which reflect the preferences, often political, of utility regulators.

These are theoretical points. The authors of the study, prepared for the Energy Choice Coalition, wanted to see what is happening in real life. They “sought to quantify the actual emissions reduction trajectories of competitive vs. non-competitive regions in the U.S. electricity sector.” So they compared environmental outcomes in the seven areas of the U.S. that are under the jurisdiction of ISOs (Independent System Operators) – that is, regions that have competitive wholesale power markets – and outcomes in areas without ISOs.
Here are some of the highlights:

  • ISO regions have reduced their power sector CO2 emissions by about 35% from 2005 levels while the reduction in non-ISO regions was 27% over the same period. In other words, the reduction for competitive markets was approximately one-third greater. The figure below shows the reductions in specific ISO regions and aggregate declines for the two categories.The ISO regions that had particularly high levels of competitively owned electric generation “generally led with deeper emissions reductions.” For example, the New England ISO had a 61% decline in emissions; the New York ISO, 56%; and PJM, the large ISO that includes Pennsylvania, New Jersey, Maryland, Ohio, and other nearby states, 41%.
  • While ISO regions represent about 67% of U.S. power plant capacity of all types, they deployed nearly 80% of all utility-scale renewable generation capacity.
  • ISO regions have seen stronger growth in distributed solar photovoltaic technology, which converts sunlight directly into electricity. Since 2014, the increase for ISO regions has been 214%; for non-ISO regions, 199%.
  • Non-ISO regions increased their electricity generation at a faster pace than ISO regions, so “in theory, stronger growth in electricity generation could have allowed non- ISO regions to reduce their emissions intensities faster because the additional growth in electricity demand could have been met by lower-emissions sources of energy,” write the researchers. “However, the data indicate that was, on average, not the case. Emissions intensity fell 39% for ISO regions and just 32% for non-ISO.”

Rhodes Report Confirms Findings of PRI Study

The Rhodes report’s results are similar to those of a study released in September by the Pacific Research Institute (PRI), publisher of this newsletter. Using U.S. Energy Information Administration data for 2008 to 2018, the author of that study, Dr. Wayne Winegarden calculated that energy-related carbon dioxide emissions fell 7.3% in monopoly states, compared with 12.1% in competitive states.

The broader PRI study, which also examined cost and reliability, cited research published in March 2020 by Jennifer Chen of the Duke University Nicholas Institute for Environmental Policy Solutions:

Interconnection and the ability to connect far-flung but cheap renewables with customers through transmission is an advantage of RTOs [regional transmission organizations, akin to ISOs]. For example, RTO regions have seen more wind generation development compared to comparably wind-rich regions outside of RTOs. Markets with large geographic reach can improve the flexibility of the power system, which is important in the long run as more variable renewables come online.

An earlier study by the Brattle Group found that “the seven states with the highest installed wind-generating capacity…were all located in areas with regional ISO markets.
That study also looked at which parts of the country were installing renewable generation capacity that went beyond the Renewable Portfolio Standards (RPS) that were mandated by state regulators. The researchers found that “the majority of these ‘beyond-RPS’ renewable generation investments have occurred in regions that…have organized regional ISO/RTO markets that provide transparent and liquid trading for both the ‘energy’ and ‘green’ attributes generated by the resources.”

In their research, published last month, Dr. Rhodes and his co-authors also pointed to the future. “With new digital and distributed energy technologies, the suppression of customer preferences [by monopolies] may become increasingly costly.” The authors continued:

Consumer preferences are more varied, and with increasing awareness of the environmental impacts associated with energy consumption, many consumers value ways to modify the environmental footprint of their consumption. Markets offer opportunities to express those preferences. For instance, real-time or indexed pricing plans can allow customers that are willing to modify their energy use behavior to access electricity costs that are often well below those of a fixed-rate plan.

In addition to Dr. Rhodes, the other researchers were Lynne Kiesling, research professor in the School of Engineering, Design and Computing at the University of Colorado-Denver and co-director of the Institute for Regulatory Law and Economics; F. Todd Davidson, assistant professor in the Department of Civil and Mechanical Engineering at the U.S. Military Academy; and Michael Webber, Josey Centennial Professor in Energy Resources at the University of Texas at Austin.

Pennsylvania Celebrates a Quarter Century of Electricity Competition

Earlier this month, Pennsylvania leaders celebrated the 25th anniversary of the “Electricity Generation Customer Choice and Competition Act,” signed into law by then-Gov. Tom Ridge. According to a Dec. 7 RTO Insider article, the law fundamentally changed the state’s “energy market to give customers the ability to choose their own electric supplier, encouraging them to shop around and compare prices.”

The law, said the article, has resulted in Pennsylvania consumers “paying electricity rates lower than the national average after being one of the most expensive states in the country for electric generation.”

More than 1.5 million residential and 300,000 non-residential customers have taken advantage of the program. Over the last 25 years, Pennsylvania has become the largest power producer in the PJM ISO, as well as the largest net exporter of power in the country.

Nora Mead Brownell, a former FERC commissioner and a member of the Pennsylvania Public Utility Commission when the law went into effect, said the debate in the legislature at the time was “intense,” with many outside pressures influencing its development. The article added:

Brownell said while she’s excited to see what happens in the future with the competitive market program, its benefits have already created lasting impacts on the state, ranging from declining carbon emissions caused by retiring uncompetitive coal-fired generators to increased capacity and efficiencies for nuclear plants, “bringing value to customers.”

Brownell said that one of the consequences of the law is that it allows consumers to choose green energy as a source for their electricity “even though it was more expensive, something that wasn’t anticipated.” The choice “sent a market signal, leading to investment in renewable energy like large wind farms in the western part of the state.”

Rod Williamson, executive director of the Industrial Energy Consumers of Pennsylvania (IECPA), pointed to benefits for large industrial customers Pennsylvania had the ninth-highest industry electricity rates in the U.S. in 1995, the year before the Ridge signed the law. But, said Williamson, in 2020, Pennsylvania ranked 30th in industrial electricity.

Williamson also said that many industrial customers are demanding more renewable energy sources, and competitive markets let them control the source of their generation. “IECPA supports competitive energy markets and regulatory structures that facilitate a consumer’s use of these markets,” Williamson was quoted by RTO Insider as saying.
David Taylor, CEO of the Pennsylvania Manufacturers’ Association, added:

Competitive markets are foundational to Pennsylvania’s future economic success, and there is no going back. This is a benefit all consumers enjoy, but especially large energy-consuming manufacturing employers that employ the most people, add the most value and have the strongest multiplier effect on economic growth.

Meanwhile, New Jersey’s Master Plan Lacks Transparency, Say Critics

Pennsylvania’s success provides a contrast with what’s happening in New Jersey, where the governor, Phil Murphy has hatched an Energy Master Plan, an unfortunate phrase with overtones of Soviet master planning. One worry is that the public doesn’t know the details and the costs. Another is that the plan could thwart competitive forces and consumer choice, which have successfully held down consumer costs and encouraged environmentally sound energy decisions in the state in the past.

In a blog on the website ROI-NJ.com, the organization Affordable Energy for New Jersey (AENJ) called for transparency:

AENJ believes that climate change is real and must be addressed. We also believe that our energy needs are growing and must be met with the affordable, reliable and abundant resources we have available to us. These are not competing ideas but are ones that exist simultaneously. In short, we do not believe in choosing winners and losers when it comes to energy policy. Like a healthy financial portfolio, our state and national energy portfolio must be diverse. 

New Jersey Spotlight News article by Ed Potosnak, executive director of the New Jersey League of Conservation Voters, made the point that legislation and executive orders, no matter how well-informed, “are only half the battle.” State officials and voters need to remember that “maintaining New Jersey’s competitive electricity market is also essential to delivering the most efficient and cost-effective transition to a carbon-free grid. It was no accident that New Jersey came to be a leader on clean energy, but how we got there is often overlooked.”

How? Through competitive markets, which, he writes, have been “accelerating emissions reductions, spurring technological innovation, and securing enough power resources to reliably meet growing demand.”

Announcing the Vogtle Award

In a tongue-in-cheek commentary on such scandals, Tom Shepstone, an energy analyst who runs a planning and research consulting firm in Honesdale, Pa.,  proposed on NaturalGasNow.org that monopoly electric utilities are so “rife with stunning examples of cronyism, mismanagement and corporatism at the expense of ratepayers [that] they deserve an award. Shepstone wants to call it the “Vogtle Award.” 

That’s a reference to a fiasco on which we’ve previously reported: the Alvin W. Vogtle Electric Generating Plant, which was originally expected to cost $14 billion when Georgia regulators approved it in 2009. In June, the Wall Street Journal reported, “The only nuclear-power plant under construction in the U.S. is facing delays and additional costs. Again.” It’s now expected to open in the summer of 2022 – 13 years after approval – at a price tag of nearly twice the original estimate.

By opening, according to a report in the Atlanta Journal-Constitution, the average Georgia Power residential customer will have paid $854 toward the Vogtle expansion – with nothing to show for it during that period. Construction has proceeded, with the Georgia Public Service Commission’s blessing, despite PSC analysts saying back in 2017 that the project was “no longer economic.

Speaking more generally in his piece, Shepstone writes about waste and corruption: “Why has this happened? The obvious answer is this: there is no accountability in Big Electric Utility monopolies.” In the case of Vogtle, “Someone misjudged the time and money involved at the front end or they deliberately underestimated the true costs in expectation that would be an easier sell at the front end and the PSC would be forced to give them more later in the way of rate increases to cover the gap…. And, who pays for this? Well, ratepayers, of course.” 

So Shepstone announces five winners. To First Energy and ComEd for cronyism in cases that led to massive fines in Ohio and Illinois, respectively; to Georgia Power and Mississippi Power for mismanagement in cost overruns borne by ratepayers; and to Dominion Energy for maximizing expenditures in Virginia.

The “conclusion,” he writes, is that “this doesn’t occur in performance-based competitive markets.”

Following the Consumer Revolt in Virginia

We have frequently reported on energy developments in Virginia, where consumers appear to be in open revolt against the monopoly system of electricity generation and the election of a new governor may change the equation.

In an op-ed in the Virginian-Pilot, State Sen. Chap Petersen, a Democrat, wrote that in the 2020-21 session, “perhaps the most obvious bipartisan reform is one that the Democratic majority left on the cutting room floor.” It was a bill that sought “to eliminate the political influence of Dominion Virginia Power, the public monopoly delivering power to Virginia homes and dollars to politicians’ pockets.” 

State Senator Petersen’s op-ed cited the Grid Modernization Act, which, he wrote, “allowed the company to ‘re-invest’ its excess profits in additional hard assets for which it receives a robust return on equity…. According to the most recent review by the SCC [State Corporation Commission], this 2018 update has cost Virginia consumers almost another $1 billion in over-charges.”

State Senator Petersen says that his own legislation to rein in the utility by prohibiting public monopolies from donating to state officials who “define and regulate their monopoly” failed in both the House and Senate, so “why should 2022 be any different?”

His answer in the op-ed is “a governor who will endorse the bill and encourage others to vote for it. Without that leadership, the status quo will prevail as too many members have equity in the current system.”

The election of Republican Gov. Glenn Youngkin on Nov. 2, Petersen writes, may be the answer. “If Youngkin can end the era of Dominion’s political influence in Richmond,” writes Petersen, “then he will accomplish something with lasting value which will be appreciated on both sides of the aisle. In this hyper-polarized political era, that alone would be truly historic.” 
In another Virginia development, the Fairfax County Times on Dec. 3 published a letter from Bill Greene of Alexandria, formerly with the U.S. Department of Energy, expressing outrage at Dominion Energy’s responsibility for the power outage at the Del Ray Arts Festival. But Greene went further.

“Energy consumers,” he wrote, “should play a bigger role in the process of deciding how and from where they get their power.” He criticized “a group calling itself Power for Tomorrow [that] has been engaged in a sophisticated lobbying and advertising campaign designed to convince [the public that] power market competition is a bad thing.”

In the letter, Greene cites questionable practices by Dominion and adds, “Ultimately, that’s an issue for regulators and legislators with oversight authority over Dominion but, in the interim, to set the record straight: competitive electricity markets provide cheaper energy prices, more reliable electricity, and greater emission reductions compared to monopoly states.” In an op-ed in the Virginia Mercury, headlined, “Dominion is abusing its monopoly. Time for a new model,” John Hanger, a former commissioner of the Pennsylvania Public Utility Commission, who has testified before the Virginia SCC in the past, urged that the Virginia legislature “give the power of choice to captive ratepayers of Dominion.”

Hanger, like Greene, cited “as a big roadblock” preventing competition, Dominion’s “aggressive public relations, lobbying and political campaign to keep its monopoly. He noted that, according to a report by VPM, the Virginia public radio outlet, Power for Tomorrow, “a group connected to Dominion,” had a campaign which, wrote Greene, “made reckless and false claims that disaster would happen if Virginia customers were freed from electricity generation monopolies and given the power to choose their electricity supplier or generate their own electricity.”

A Corruption Scandal at the Nation’sLargest Municipal Utility

It’s a sad commentary on the state of power generation, but one of the themes of this newsletter has been the mounting scandals involving monopoly utilities.

In a development reported by the Associated Press on Dec. 8, the former head of the Los Angeles Department of Water and Power, the nation’s largest municipal utility, “agreed to plead guilty in a corruption scandal. The official “admitted in court papers that he…secretly pushed through a three-year $30 million no-bid contract,” approved in 2017. The official, the AP reported, “did not disclose that he planned to retire and join the company as CEO for a $1 million-a-year salary.”

The Los Angeles scandal, according to the AP, grew out of an “automated billing disaster that stuck ratepayers with exorbitant bills.” This is another recent theme: In these scandals, consumers end up holding the bag.

The standard regulation model allows utilities to pass on their capital expenditure costs to ratepayers. Sometimes, however, those costs are inflated, and capital investment is unproductive. By comparison to a competitive system, it’s a relatively easy model for the unscrupulous to exploit.

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