It’s Time to End the Auction Fiasco

It’s Time to End the Auction Fiasco

It’s time to end the fiasco of wholesale electricity markets, that rely on auctions to determine which source of electricity to use on the grid.

These wholesale markets are rigged in favor of wind and solar and they are forcing baseload power generation, specifically, nuclear and coal-fired plants, to close. See, The Market for Electricity is Rigged.

The closing of baseload plants is creating reliability issues that must be faced.

This problem exists in areas having so-called competitive markets that use auctions. These areas are shown in the accompanying map.

The September 2016, “White” paper produced by Wilkinson-Barker-Knauer LLP, addressed this problem.

Auctions based on marginal costs wont allow for recovery of investment, which is why states and RTO/ISOs have attempted to address the obvious shortfalls of the auction system by adopting workarounds, to feed money to baseload power plants, e.g., special features such as maintenance fees, or, as in New York State, the establishment of zero-emission credits.

Quoting from the white paper:

“Baseload power from coal-fired and nuclear generation is exiting wholesale power markets, and no organized market is immune. Coal and nuclear baseload power are exiting — or threatening to exit — ISO New England, NYISO, MISO, PJM, and ERCOT. The loss of baseload generation raises serious concerns about the electric reliability and fuel diversity in at least some organized markets.”

Quoting one of the authors of the white paper, as reported by Utility Dive:

“The problem with these markets — and maybe it’s not a problem, but a feature — is they clear at the marginal cost of production,” he said. “Well, at the marginal cost of production, you’re not covering your fixed costs.
(Emphasis added)

Just recently, FERC approved another workaround for ISO-NE, i.e., Competitive Auctions with Sponsored Policy Resources (CASPR), but this workaround could result in nuclear and coal-fired power plants closing more quickly which will exacerbate the reliability problem.

Quoting the Union Leader:

“CASPR will enable state-sponsored hydro, wind, solar or biomass projects to buy out the forward capacity contracts of fossil fuel or nuclear plants whose owners want to retire them earlier than the existing capacity contract would allow.”

Understanding CASPR, and for that matter the auction system, is a major undertaking. To illustrate the complexity of CASPR, here is a quote from RTOInsider:

“Under ISO-NE’s proposal, it would clear the Forward Capacity Auction as it does today, applying the minimum offer price rule (MOPR) to new capacity offers to prevent price suppression. In the second Substitution Auction (SA), generators with retirement bids that cleared in the primary auction would transfer their obligations to subsidized new resources that did not clear because of the MOPR. The proposal would phase out the current Renewable Technology Resource (RTR) exemption, which has allowed ISO-NE to clear 200 MW of renewable generation in its capacity auction annually (to a maximum of 600 MW) without regard for the MOPR.”

The entire structure of the auction system, with its plethora of rulings and workarounds such as CASPR, demonstrates it is a grotesque Rube Goldberg arrangement that should be abandoned simply because it’s too complex to understand and administer, let alone that it threatens reliability.

Americans deserve better.

By Rube Goldberg

The auction system has been imposed on the public by ideologues who want to replace fossil fuel, and possibly nuclear, power plants with renewables, such as wind and solar.

FERC and others have encouraged these auctions, while the media has largely remained silent, only commenting when there has been a near catastrophe.

This past winter’s near collapse of the grid in New England forced the media to describe how oil saved New England from blackouts. See, Oil Saves New England.

Dispatching of electric power is a technical activity done by specialists behind the scenes, and is largely hidden from public view.

Because it is largely hidden, the public may not be able to recognize the emerging problem, but will become acutely aware of it when there are blackouts.

However, if baseload power plants have been dismantled it will be too late.

The only way to fix this problem before reliability is jeopardized is to return to vertical integration and regulation.

It’s time to scrap auctions and end this fiasco.

. . .


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One Reply to “It’s Time to End the Auction Fiasco”

  1. Leave to the regulators as much as you can, and let the market dictate prices. Auctioning will have its consequences soon enough. Lower the expectations that “The Government” will fix the problem. They never have and never will.