The Quiet Undoing: How Regional Electricity Market Reforms Threaten State Clean Energy Goals

Abstract

In a series of largely unnoticed but extremely consequential moves, two regional electricity market operators are pursuing reforms to make it more difficult for states to achieve their clean energy goals. The federal energy regulator, FERC, has already approved one such reform and ordered a second market operator to go farther in punishing state-supported clean energy resources than it had initially proposed. This disturbing trend highlights a shift in energy governance that threatens to destabilize the field’s delicate cooperative federalist model. Over the past several decades, states have increasingly ceded control over energy dispatch and grid planning to private market operators, on the understanding that these neutral entities would design regional markets to accommodate state resource preferences. Now, several operators are alleging that state clean energy policies “harm” their markets — with scant support as to why — and have instituted reforms intended to protect fossil-fuel resources from the impacts of state policy preferences. In this essay, we bring to light the ways in which the intricate, technical reforms underway in regional electricity markets threaten state climate change objectives and the durability of FERC’s regional market constructs. If FERC allows private market operators to impose their policy preferences on participating states — or if FERC requires pro-fossil market designs — progress in decarbonizing the electricity sector will likely slow. At the same time, the potential for greater regional cooperation in electricity markets — a critical strategy for integrating a high penetration of renewable energy onto the electricity grid — will diminish.