HARVARD ELECTRICITY POLICY GROUP HARVARD ELECTRICITY POLICY GROUP NINETY-SIXTH PLENARY SESSION MANDARIN ORIENTAL HOTEL WASHINGTON, D.C. TUESDAY AND WEDNESDAY, OCTOBER 1-2, 2019 Rapporteur’s Summary* Session One. Decline in Revenues: Impact on Generators and Utilities and Options for Response Generators have been experiencing a noticeable decline in wholesale market revenue. The litany is familiar. Low natural gas prices, competition from low to no marginal cost energy sources, increases in the penetration of distributed resources, increased efficiency in the use of energy, imperfection in the markets and in the rules governing them, individual state mandates or subsidies that distort prices, and retail tariffs that do not send appropriate price signals to end users. Policy options include simply respecting marketplace outcomes and the incentives that flow from them, and doing nothing more than maintaining the current rules. At the other end of the spectrum are those who see real threats to sufficiency of supply, diversity of supply, and adverse environmental effects, and who contend that more coordinated actions must be taken at Federal and state levels to deal with those issues. Are the low revenue scenarios something other than normal market cycle, or are they part of a permanent market change? Under either scenario, what public policy or regulatory response, if any, should be undertaken? Is there any coherence to the wide variety of policy initiatives? Over the horizon, what are the implications for efficient electricity systems? Moderator. positive, created unintended consequences. Of Thank you, Ashley. And thank you to Ashley and course I’m referring to lower natural gas prices Jo-Ann for inviting me to moderate this fantastic because of Marcellus Shale, at least to regions panel. So we’re going to get things started. that have the infrastructure to bring the gas in. There’s no question that there’s been considerable decline in wholesale market But I digress. Combine all of that with flat or revenues due to a number of changes, many of declining load in many areas because of the which were not and could not have been foreseen investments behind the meter and finally, what I when the states all restructured, or most of the believe is the 800-pound gorilla that is absolutely states restructured. Some of those changes entering the room, how do markets integrate created intended consequences, meaning lower significant state-sponsored resources? I’m electricity costs and shifting risk from consumers reminded of when I testified at a FERC panel to power producers, and some changes, while regarding ISO New England’s then proposal, HEPG sessions are off the record. The Rapporteur’s Summary captures the ideas of the session without identifying the discussants. Participant comments have been edited for clarity and readability. PHONE 617-496-6760 EMAIL [email protected] 79 John F. Kennedy Street, Box 84 Cambridge, Massachusetts 02138 www.hks.harvard.edu/hepg CASPR, competitive auctions with sponsored altogether. I won’t touch on killing baby seals to resources. God, we’re an industry that loves those get to Russian gas to bring to Boston. acronyms. When asked by FERC staff what the Massachusetts administration’s intentions were As a self-proclaimed realist and having regarding the number of long-term PPAs, really represented all parties around the energy table, the only way I could explain it was simply that with the exception of the utility, you cannot run when the legislature or the governors say you the bulk power system on wind, solar, storage, shall, as a regulator, you execute policy and you fairy dust, and unicorns. While more acute in do. New England, this scenario can become challenging in other regions as well. With the And for many states, there is an insatiable and economics of nuclear questionable and massive possibly irrational appetite for clean energy green penetration of renewable resources, what market resources, meaning potentially declining benefits. construct will appropriately compensate those To be sure, this occurs with no thought as to what resources that are needed to keep the lights on and the impact might be to a competitive market, keep us warm in the winter and balance the price formation, and the actual cost to consumers intermittent nature of clean energy resources? with some subsidies buried deep in the ever complicated customer’s electricity bill. On price As is their custom, HEPG has put together a great signals, early on wholesale markets performed panel and it is my privilege to moderate that this admirably just as they were intended to. morning. We’re going to start with Speaker 1, Incentivizing investment in both transmission who is the president of the New England Power and generation but price signals to residential Generators Association. I’m familiar with that customers, maybe not so much. With some group. Speaker 1 represents generators of all utilities billing systems held together with shapes, sizes, and flavors that are all in the basically only Duct tape and bubble gum, forefront of dealing with these challenges in New realistically, because all they needed to do was England as well as other organized, or maybe in produce a very simple bill, there will need to be some cases unorganized, markets across the significant investments in software and country. Next, we will hear from Speaker 2, who technology. works for Exelon who, in addition to being a large utility, is also the largest operator of nuclear The change is definitely coming, especially with generating facilities in the US. Following states changing utility business models to be Speaker 2 will be Speaker 3. Speaker 3 is with much more of a platform to incentivize the Grid Strategies which is a strategic consulting adoption of new technologies. Optimistically, and advocacy firm helping clients with the even with advancements in techs and technology, integration of clean energy into the electric grid I stand here coming from a region that is the and an advocate on grid integration solutions. poster child of concern every single winter for And then batting cleanup is Speaker 4, who is ISO New England, FERC, and NERC because of with the National Association of Utility the lack of investment in natural gas Consumer Advocates. As I became fond of infrastructure. Our bad winters have been well saying throughout my energy career, there is only documented. As I said in a recent op-ed in the one wallet in the room and that’s the consumer. New York Daily News, the fuel shortage became So Speaker 4 brings that critical voice to this so dire, ISO New England estimated that the discussion. And with that, we’ll start with region was only 48 hours from running out Speaker 1. 2 an explosion in transmission costs in New Speaker 1. England with increases over the last 10 years that Thank you. And I think with that great tee-off, have really had a major impact overall and that what I want to do is start with a little bit of context has then led to consumer impact on the retail and then transition into where we’re going and level, again as the Moderator highlighted, in what’s going on here and hopefully then engage which, despite the fact that we are seeing some of with the conversation with you all and the other the lowest overall wholesale energy prices, both panelists here. energy and capacity, frankly, we’re seeing rate payer rates go up. As the Moderator noted, New England Power Generators is the trade association. IT represents And here, this is a busy slide but we broke down a fuel-diverse fleet in New England. Within our three of the major Eversource utilities across New membership, we have approximately 90% of the England to try and create as comparable a view installed generating capacity coming from every across the region as possible and there’s really different technology that exists on the grid three major components. The red portion is overall. So to start with some context that I don’t transmission and distribution, the blue in the think is going to be a surprise to anybody in this middle is those wholesale power costs largely room. New England, like most markets in the coming out of the standard offer service auctions, country, is seeing some of the lowest wholesale and then the green portion is what I call public electricity prices in their history. In fact, 2016 policy and that’s things like RGGI compliance, and 2017 were the two lowest price years ever in energy efficiency, and RPS compliance. New England. In 2018 we saw a bump but in 2019, my guess is we’re going to be back close to Overall, you see those blue portions going down those 2016 and 2017 levels. and the other portions going up. And this is now starting to become indicative of what we expect At the same time, we’ve gone through a period of to see in a much larger trend moving forward time in which we’re retiring a significant portion which is those green portions, particularly in of the fleet and adding a significant portion of the places like Massachusetts, Connecticut, and fleet, and so some of those low wholesale energy Rhode Island, will become the dominant portion costs have been met with higher capacity prices. of an overall rate given the large scale contracts And what you see here are the capacity prices that are just now starting to be approved but have within the delivery year. So in 2018 we were not yet gone commercial and therefore there seeing the peak of capacity prices coming out of hasn’t been the bill impact.