A More Perfect Union

In the middle of the most divisive electoral campaign in decades, there's one cause that most thoughtful people can get behind: fighting climate change by ushering in a new era where renewable energy is the norm. The Obama Administration's intentions on this issue are clear: the Environmental Protection Agency's proposed Clean Power Plan is already driving states and industry to evaluate how to comply.

It's also clear that both Hillary Clinton and Bernie Sanders would maintain if not accelerate this change to a clean power system. While it's not as clear what Donald Trump would do, key energy stakeholders nevertheless accept that a sweeping program of investment to combat climate change is upon us. This is where the opportunity lies, because renewable energy can serve as a bridge that both sides of the aisle should be able to support thanks to the significant carbon reduction and economic benefits it provides. What we have to figure out is how.

One way to imagine the "how": visualize every state in the union as impenetrable and having to solve the problem itself. The outcomes would be extremely varied: some states would have a hugely difficult time transitioning away from coal, other states would have a much easier time. Given unfettered trade, however, a state should be willing to import more and produce less if it does not have a comparative clean energy advantage. Put another way, in the coal era it made sense for Iowa to import coal from Kentucky. In the renewable energy area, it makes sense for Kentucky to import power from wind-rich Iowa.

This efficiency can only be gained if trade exists. In electricity, trade occurs across transmission systems. Thus, one would think that government regulators at both federal and state levels would do all they can to facilitate this trade by enabling more transmission. Therefore, regulators should see an opportunity to transform the U.S. electric market from high carbon to low carbon by reforming and updating the rules around transmission.

Much of the potential to impact change lies in the hands of the federal regulator (the Federal Energy Regulatory Commission -- FERC) and a collection of regional electric operators (usually known as regional transmission organizations or RTOs). Here's where things start to break down - because this collective continues to enable the balkanization of the American power system.

There's New England, run by the "Independent System Operator of New England (ISO-NE); mid-Atlantic and some mid-western states are known as "PJM"; a "pool" in the Southwest (SPP); and the other Midwestern states are in "MISO." "Organized one state power markets" exist in New York, Texas and California that are essentially coterminous with state borders. And then there is the south, where a few traditional utilities control the power systems.

The result is pretty chaotic. Those with vested interest in the existing system (formerly the coal folks but now the natural gas folks since they hold the energy commodity whose price is cheapest, for now) like to call it a market. But it isn't much of a market. When he became the new governor of Massachusetts, Republican Charlie Baker famously told a conference audience "Whatever is going on in our 'competitive market' clearly isn't very competitive..."

In fact, even though the citizens of America vote for renewable energy (which they support by a wide margin), many of them cannot get it because of the physical and regulatory constraints that have accumulated like barnacles on the American economic landscape.

FERC could do much more to facilitate well-functioning free markets. For example, if we had adequate transmission infrastructure, New York would be able to buy renewable energy from Pennsylvania, and so on.

The ability to improve renewables transmission also exists in the regional organizations. But RTOs typically do more to impede renewables trade than to accelerate it, even among progressive states, whether it be in New England, New York, or California. For example, in the mid-Atlantic area, the PJM regional organization tried to impose an $800 million upgrade bill on the New York City utility, ConEd, simply to continue a power trading arrangement that has been in place for 30 years. PJM should be a huge source of clean energy for New York City and Long Island. Instead, ConEd jettisoned this perfectly useful transmission path rather than pay this exorbitant amount. The problem for market participants is that the rulings of these electricity grid operators - supported by FERC - are virtually unassailable. They have practically absolute power.

At the moment, this entire apparatus has been designed and is being maintained to perpetuate the status quo. Change - such as contemplated in the Clean Power Plan - is very difficult to achieve, especially since market design does not require fossil fuels to pay for the damage they do to the environment. This is precisely why a carbon tax that would make the change to renewable energy easier should be passed by Congress. A carbon tax would be a necessary mechanism to move to a market that properly values electricity generated by non-carbon emitting sources, but it wouldn't be sufficient without inter-state clean energy transmission.

Since President Obama has instructed his appointed officials to do all they can to make the Clean Power Plan happen, and his administration would like to make the transition to clean power one of its primary legacies, shouldn't federal regulators and their disciples in the regional transmission organization world wake each morning thinking "what can I do to advance the President's clean energy agenda?"

That is the real question that we should all be asking ourselves.

Great constructive change requires great constructive effort. We could have a more perfect union. We could have renewable energy at a lower cost. Regulators at all levels should keep the serious need to develop a clean energy infrastructure in mind, with an eye towards prioritizing our country's broader carbon reduction goals and ensuring the cleaner energy future that most of us want.

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