Untangling the Wires in Electricity Market Planning, with Kate Konschnik

Notable Quotes

• Opportunities for reform in RTO governance: “The way the sector-weighted voting works in PJM [Pennsylvania, New Jersey, and Maryland RTO] right now is, it’s very easy to create a coalition of no, and it’s very hard on controversial issues to get a coalition for yes … We’ve unfortunately created a design flaw in PJM, where it’s really hard to get stuff through. That would be potentially a place for governance reform.” (15:28)
• Avoiding undue discrimination against new technologies in the market: “The Federal Energy Regulatory Commission, when it’s overseeing these markets, is pretty deferential and hands off. But it has these two hooks in the Federal Power Act: It has to make sure the rates are just and reasonable—and it’s decided as long as these markets are competitive, that they are creating market-based rates that are then deemed just and reasonable. And that they’re not unduly discriminatory.” (17:01)
• Transparency and public participation are important: “There’s this whole issue of states passing a lot of climate and clean energy legislation and regulations, and sometimes they’re not really fully aware of how that will play out if they’re sitting in the middle of an RTO. So we thought, ‘Hey, this Office of Public Participation could also play a role in helping engage the public around these entities and explain to them what they are and what their role is in energy policymaking, and potentially to help people get a better view inside what’s happening and potentially even a voice in decisions that are made at RTOs.’” (22:30)

Top of the Stack

• RTOGov, the Regional Transmission Organization Governance project from the Duke Nicholas Institute for Environmental Policy Solutions
• “RTO governance structures can affect capacity market outcomes” by Seth Blumsack and Kyungjin Yoo
• “Participatory Democracy in Dynamic Contexts: a Review of Regional Transmission Organization Governance in the United States” by Stephanie Lenhart and Dalten Fox
• “History’s largest mining operation is about to begin” by Wil S. Hylton
• How We Survive podcast

The Full Transcript

Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future. I'm your host, Daniel Raimi.

Today, we talk with Kate Konschnik. When we recorded this episode in mid-December 2021, Kate was a senior lecturer at Duke University Law School. She has since left Duke and is now serving in the Biden administration’s Department of Justice.

Kate has a wide range of expertise in energy and environmental law, and today she’s going to help us understand one of the most complex topics in the energy world: regional transmission organizations, or RTOs. If you’ve never heard of an RTO, don’t worry! Kate will help us understand what they do; why they are important; and how they can evolve to provide more reliable, affordable, and clean electricity in the years ahead.

Kate Konschnik from Duke University Law School, welcome to Resources Radio.

Kate Konschnik: Thank you. Thanks for having me.

Daniel Raimi: Kate, it's great to talk to you today. We are going to talk about a project that you're involved with called RTOGov. We will tell everybody what that means in just a moment. But before we do, we ask all of our guests how they got interested in working on environmental issues. So what steered you into this world?

Kate Konschnik: Oh, for me, it was love of outdoors and the amount of time I spent in the outdoors with my family growing up. I think I went on my first camping trip when I was two months old. We did a lot of car trips when I was a kid. We lived in Maryland, and my mom's younger brother lived in New Mexico, so a number of summers in a row, we just packed up the car with a tent, and sleeping bags, and a box of books, and a bunch of peanut butter and jelly sandwich makings, and headed out and just explored the United States and its national parks. And I just got hooked.

Daniel Raimi: That's so great. Road trips are the best, especially if you're having fun with your family, camping. I imagine you were driving through very beautiful places.

Kate Konschnik: Yes. I mean, there was always a little bit of running the gauntlet of interstates in the east to get to the pretty stuff. Although we ended up, as I got older, appreciating a lot more of the nature that was even just in our backyard—in the Washington, DC, metropolitan area. When I was a little kid, I used to sleep a lot for the first couple of days until we got to the big mountains and waterfalls and geysers and exciting things like that.

Daniel Raimi: That's so cool. We could totally reminisce about road-tripping, I'm sure, for 30 minutes, but instead, we're going to talk about RTOGov. Let's start with the basics: What is an RTO? What is RTOGov? Why do RTOs matter? Can you just get us started?

Kate Konschnik: Yeah, sure. We like to say in our RTOGov project that RTOs are the most important player in the energy space that you've never heard of. So, these are regional transmission organizations. There are also things called “independent system operators.” At one point, FERC—the Federal Energy Regulatory Commission—made a distinction between these entities. It's a distinction without a difference at this point, so we just use RTO, that acronym for regional transmission organization, to cover all of them.

But they are, in essence, private entities, most often nonprofit corporations that are managing the transmission lines for multiple electric utilities and running regional auctions of energy—real-time energy, the energy or electricity that utilities might need the next day. In some of these markets, they're running auctions for the procurement of future energy or capacity. So, three years or two years in the future, how do we know the power plants will be there for you to purchase the electricity that you need?

There are seven of these types of organizations in the United States serving two-thirds of electricity customers. Six of them are regulated by the Federal Energy Regulatory Commission—I'll explain a little bit more about that in a second. Then, the seventh is run by the state of Texas. So, “ERCOT” is the acronym there, and please don't make me spell that one out, but that is the Texas … I always forget one of the words.

Daniel Raimi: I got you, Kate. It's Electric Reliability Council of Texas.

Kate Konschnik: Awesome. Thank you. I knew you could help me there. So, ERCOT is its own funny little beast entirely within the state of Texas. Texas actually has its own synchronous grid that isn't connected to the other two really big grids in the United States. So that one is a little bit separated, with some real-world implications—as we saw with their blackouts earlier this year, when they weren't connected to the rest of the United States and couldn't get power into that state when a lot of their power plants were failing.

But for the six RTOs that are regulated by FERC, these all came about because Congress in the mid '90s told the Federal Energy Regulatory Commission, "Hey, we'd like to liberalize and get more competition in the electric city sector. We've done it with railroads; we've done it with telecommunications. We'd like to see it now with electricity." But Congress didn't give FERC the same, very explicit tools that it gave the other federal regulators for railroads and telecoms. They gave them some guidance, and FERC followed that guidance at first and required electric utilities that own transmission to open up their wires and let third parties buy and sell power and use their wires as common carriers.

But then, FERC went another step without explicit direction from Congress and started encouraging that multiple utilities work together in these regional organizations. Then, when these regional organizations were proposed to FERC, and FERC approved them, FERC regulated them like public utilities under the Federal Power Act. So they've created this whole other new legal entity that is regulated under federal law, just like a Duke Energy when it's working in interstate commerce or another big electric utility. In that way, the Energy Regulatory Commission needs to make sure that rates are just and reasonable and that the operations are not unduly discriminatory.

Those are the sort of hooks that the federal regulators have on these otherwise private entities, running the wires and running auctions for energy for you and me.

Daniel Raimi: There's so much to unpack there, and so many ways we could dig down. But I think where I'd like to start is with this issue that I know you're focused on in the RTOGov project, which is transparency of RTO and ISO decisionmaking and engagement with different stakeholders.

Can you give us a sense of, Why does transparency matter in the decisionmaking process of these organizations? What are some of the issues that experts have raised around those topics and identification of how to improve transparency? Just help us understand why this matters.

Kate Konschnik: First of all, it's really important to point out that FERC didn't require RTOs to be created in any particular way or to set up decisionmaking processes in the exact same way. It's always important to focus on specific markets, because they each have set themselves up differently. Who's considered a stakeholder is very different from market to market, and how they make decisions is very different.

But across the board, the RTOs—which, there's been one more in the last decade, but most of them came around about 20 years ago—they arose at a very different time in our power sector. The players in the electricity sector at that point were largely big, vertically integrated electric utilities that produced their own power, owned their own lines, and then sold you the power at your homes or businesses.

There were some merchant generators—sort of independent producers, but very small. There were the state regulators, who oversaw regulation of those utilities. Then there were reliability organizations making sure the lights stay on. So these RTOs, when they were first created, were really about efficiency, getting low electricity prices. And it was also about reliability: Let's have more of these utilities working together and running wires from a central operator, and this is going to be good for reliable, affordable power.

We didn't see a lot of other sorts of goals—some of the goals that we've now layered onto our grid. Like, we want it to be resilient in the face of more intense storms, and we want it to be sustainable. We want to have lower carbon intensity power. Those goals started creeping in over the last 20 years. Environmental groups started getting a lot more interested in the grid and the power sector and how it could help us drive down emissions. Consumer groups got a lot more interested in having a voice and realized that in some cases, a lot of the locus of power had moved from the state regulator to these markets.

So, what we've seen is, the markets got set up at a time—and they all are set up differently—but for instance, PJM (the biggest market; the acronym is Pennsylvania and New Jersey and Maryland, because it's centered on the Mid-Atlantic)—they have a membership-based program where you have to pay dues. It's a pretty arduous participation process—lots and lots of meetings. Then they vote on various proposals in these sectors. So, they have five sectors, and it’s sector-weighted voting.

It's interesting looking at those sectors over time. There's a sector for transmission owners (there was only a handful—there's still only a handful of those). But then, for instance, the supplier's sector has gone from very few power suppliers to hundreds of participants. So, some of this issue about who is a stakeholder is just that the grid has changed so much in 20 years, and these decisionmaking processes are a bit ossified and haven't caught up.

There are a lot of folks who are not members in the membership-based organizations like PJM, New York ISO, and the New England ISO, who feel like they're on the outside, looking in. Most of these markets are not great at posting minutes of meetings or even notifying that there were meetings or explaining the implications of changes to their tariffs—to their rulemaking book that they're submitting to FERC, beyond the very formal documents that they send to the Energy Regulatory Commission.

States and environmental groups and consumer groups and new entrants to the market—like, somebody who's just come up with a new demand-response app for your phone or something—people trying to get into the market: These guys often feel like they're on the outside, looking in, and can't figure out how to engage with these markets. A lot of our researchers were really interested in this from lots of different standpoints. But many of them are doing deeply engaged research and interviewing stakeholders in these processes—both those who are officially part of a member-based organization and those who are trying to influence it from the outside.

Through that, there have been a number of proposals that are starting to be developed through our research and in partnership with stakeholders, of even just things as easy as posting agendas of meetings online, saying, "Hey, this market is going to be discussing these things," or minutes of those meetings.So that for instance, state legislators know what's going on in the market that they're sitting in.

Daniel Raimi: That all makes sense, and it's starting to come together in my head. This is such a complex universe of actors and technologies and regulators. It is so important, but it's still a little abstract. I imagine—for me, for sure, and maybe for many of our listeners—it would be helpful to have an example. So, can you take us through an example of an instance where there was some process led by an RTO or ISO in which you would consider the stakeholder engagement process to be particularly, let's say, “good” or “bad.”

Kate Konschnik: Yeah. I can think of two examples, maybe just drawing on research that some of my colleagues have done. Seth Blumsack, who's a professor at Penn State, has done some really interesting work studying the three member-based RTOs in the east—the one in New England, in New York, and PJM—and has looked at their voting records and trying to figure out: Who aligns with whom? And where are there interesting coalitions that come about? He's been doing some really interesting work about how PJM makes decisions.

They have five voting sectors, and as I started to talk about before, some of those sectors have five members in them, and some of them have 700 members in them, so depending on who you are and what category you fall in, you've got more or less of a diluted vote. And you need to have a 60 percent passage rate for any proposal. He's done some really interesting work on a very wonky but important topic around PJMs capacity markets.

PJM is one of the three markets where one of the auctions it runs is for future energy. It requires any utility participating in PJM to promise to buy 100 percent of its electricity three years out from the market. This has led to a lot of controversies, because there have been various rules about what's allowed to participate in that PJM capacity auction.

Often, what has been kept out in the last few years are state-subsidized clean energy projects, lots of East Coast states with subsidies for and programs to encourage deployment of clean energy. So, there's this potential where you've got a lot of clean energy on the grid that the market isn't recognizing. The concern is that ratepayers and some of those states are paying twice. They're paying for the state-subsidized clean energy, and then they're paying for 100 percent of their power needs through the market.

One of the issues has been around how much additional energy do we need three years out, and what's the price that the market should pay for it to encourage it to come in? Seth has done these really interesting counterfactual things, where he's found that, basically, the way the sector-weighted voting works in PJM right now is, it's very easy to create a coalition of no, and it's very hard on controversial issues to get a coalition for yes. He's shown that that process is breaking down a bit now, where they had many, many no votes against lots of different ways to set this price to bring in new energy.

As a result, the price (it's called the “variable resource requirement,” VRR)—but this price that PJM ultimately went with, that it had to create on its own, from its own staff, because it couldn't get anything through the stakeholders—when it went to FERC with that, it was actually a much higher price. So, worse for consumers than many of the proposals that had been put in front of stakeholders, who said “No.” And all the stakeholders agreed: they hated what PJM sent to FERC.

Seth has talked about this, just the basic math and how the sectors have evolved over time and how many players there are in each of these sectors and then the coalitions that build. We've unfortunately created a design flaw in PJM, where it's really hard to get stuff through. That would be potentially a place for governance reform.

Another example I might just give, that maybe is even a little bit more accessible to your audience, is how new types of technologies get into these markets. Again, I'd said at the beginning that the Energy Regulatory Commission, when it's overseeing these markets, is pretty deferential and hands off. But it has these two hooks in the Federal Power Act: It has to make sure the rates are just and reasonable—and it’s decided as long as these markets are competitive, that they are creating market-based rates that are then deemed just and reasonable. And that they’re not unduly discriminatory.

What we've seen FERC do several times in the last few years is out of a concern that there could be some undue discrimination against new entrants. They've issued these orders, saying to all of the markets at once, "Hey, you need to change your rules to accommodate these new technologies." They've done that, for instance, with energy storage, battery storage, with this order called Order 841.

You can see even before then—and this is a lot of the work that Stephanie Lenhart has done out of Boise State in RTOGov—is this sort of issue-tracing of, okay, well, some of the markets were already doing a really good job on energy storage. California's ISO, for instance, was. California is not a membership-based organization; it's very staff driven. The staff goes and notices new trends in the market, and then proposes changes to the market rules to enable new entrants. People comment on it as if it's an agency rulemaking, and then they come to a result.

That one had been more open to energy storage—probably because it's also very influenced by the California state government, which had been putting a lot of resources behind energy storage, but also potentially because of the way it makes these decisions through the sort of staff-driven process.

Other markets had really fallen behind. What Stephanie has done is, from the time that FERC issued Order 841, Stephanie has been tracking the different processes that all of the markets—the six markets that are governed by FERC—have gone through at the same time. It's a sort of contemporaneous exercise of, Who are they talking to? And how are they going through this process of updating their rules to accommodate more storage?

It is interesting seeing how that plays out. We're trying to make the link between how they're making these decisions and then ultimately where battery storage is going to find the highest value. We'll start to see it being built in the markets where it can play and can make the most money from the most auctions.

Daniel Raimi: Those two examples are really helpful, putting the meat on the bones there. Now that we've got those two examples in place to orient us a little bit, let's zoom back out.

In May of this year (in 2021, that is), you and a number of colleagues from the RTOGov project put together a formal comment to the Federal Energy Regulatory Commission related to something called the creation of an Office of Public Participation. What's this idea of the Office of Public Participation, and what are some of the key messages that you and your colleagues were seeking to deliver?

Kate Konschnik: Sure. So this Office for Public Participation is a really interesting creature. Congress actually gave FERC the authority to create this office 40 years ago. FERC had just never acted on it. For a very long time—FERC commissioners will tell you this—I mean, until the last 10 years, they worked in relative anonymity. People didn't really know what FERC was. It wasn't really in the vernacular. People weren't talking about, "Hey, did you hear about the FERC decision?" This was not something that, beyond public utilities and some of the DC law firms that represent those utilities—it was a very inside baseball game. Most other people were not paying attention.

FERC really started to draw some public attention and fire around approval of natural gas infrastructure. It's something they've done for many decades, when Congress federalized the siting of natural gas pipelines. But there has been a really big build-out of natural gas infrastructure in the last 10 years, building on the fracking boom and the shift of a lot of our electricity generation from coal to gas.

With that came a lot of public awareness of, "Hey, there's this agency in DC that says yes to these pipelines." So, suddenly, FERC was having to contend with protestors in their lobby, and on their front steps, and that was not something that they were used to. I think the Office of Public Participation, and the reason to bring it about now, is really in reaction to that. It's much more about infrastructure siting.

But the RTOGov team saw an opportunity here. We said that the way it's described in the statute is much broader than just infrastructure. And it just talks about—for any of the activities that FERC is engaged in—really being able to explain to the public what's going on and to give the public more of a voice in these matters, including potentially helping them formally participate in some FERC dockets.

So we thought, well, we've been hearing from a lot of stakeholders—both within the RTOs and without—who are concerned about RTOs being dominated still by the transmission owners, and some of the incumbent generators, and how they're not maybe moving along quickly enough to reflect what grid looks like today.

Then there's this whole issue of states passing a lot of climate and clean energy legislation and regulations, and sometimes not really fully aware of how that will play out if they're sitting in the middle of an RTO. So we thought, "Hey, this Office of Public Participation could also play a role in helping engage the public around these entities and explain to them what they are and what their role is in energy policymaking, and potentially to help people get a better view inside what's happening and potentially even a voice in decisions that are made at RTOs."

Daniel Raimi: So, if we play that out and imagine the ways in which these new stakeholders might affect decisions, ultimately, what are some of the end states that you might imagine? Or, what are the ways that you think the public and new stakeholders might be able to affect these decisions in ways that alter the outcomes that we care about—like, costs and reliability and emissions and things like that?

Kate Konschnik: Yeah. It's a great question, because these are still really technical organizations. The issues they are grappling with are incredibly important, because they ultimately depend on how much you're paying for your electricity and whether your power stays on during storms and other disruptions.

Yet, this has become such an area of social focus. I mean, this is really where we think we can make a lot of near-term reductions in greenhouse gases. This is where a lot of equity conversations have come about—about the siting, and costs and benefits of our electricity system, and who pays and who benefits.

So, trying to figure out the right way to marry this up, I think it's probably not fair to imagine a world where members of the public are participating in formal RTO processes, just because they are so time consuming and so technical. But thinking about proxies for the public to have a voice—for instance, states.

I mean, the state role in these markets is really interesting. In the east, a lot of the states—along the same time that RTOs were being formed, these states restructured their utilities and broke up the vertically integrated utilities so that the utilities selling you power at your house couldn't also own generation. That made the market more competitive. It also reduced the influence that the state utility regulators had over public utilities. They still would regulate the utility that has the distribution wires to your house, but they had a little bit less of a say over other aspects.

That loss of power has been, I think, exacerbated then by entrants into these markets, so it's really the market starting to make more of a decision about what types of generation gets built, even though the Federal Power Act leaves that power with states—and that's a traditional role of states.

States are trying to pull that back and use that power again. We're seeing it in the East Coast, particularly around clean energy. Whereas farther out west, a lot of the utilities have remained vertically integrated. They are still traditionally regulated directly by state utilities. As a result, the markets that have grown up around those states have had to accommodate state preference a whole lot more.

So, there's a real question about what roles the states should play in these restructured states. Is there some better balance of power between the markets and the states to figure out, okay, if a collection of states wants more clean energy in the market, at what point is it not a market, if they're just forcing power in based on their preference? On the other hand, is there some way that the market can reflect those preferences, for instance, through a carbon price?

I think some of the ways to get more public involvement in RTOs is to think about these proxies—thinking about states. Ideally, the policy preferences states are expressing are a matter of a democratic process. So, the people have spoken there, at least in theory. Then, maybe having states have more of a voice and the choice of generation is one way to go.

Environmental NGOs: We have a couple of people in RTOGov from Vermont Law School—Mark James and Kevin Jones—who've been researching and interviewing lots of environmental NGO stakeholders across the country in these markets and figuring out, Is that a proxy for the public? Is it a matter of improving their ability to weigh in?

Then just looking at different processes entirely. Is it to have this sort of membership-based thing that we see in the east? Or something more like California, where the professionals come up with proposed changes, the staff within the market, and then everyone in the public is welcome to weigh in with comments? That's still really an open question.

There probably isn't one answer about how you make this more public. But we thought some first steps that we suggested in our comments to FERC were just: Using this office of public participation to provide RTO 101s, just so people know what these markets are and know if they live in one, know if that is a player in the energy transition conversation in their region. And then figuring out ways to help people track more of what's happening in those markets. Maybe even having an RTO ombudsman for—say there's a new market entrant, some sort of new power producer or demand-response product, and they're having a hard time getting into markets.

I mean, even thinking about membership based: Are you going to pay a membership due? Sit in hours and hours and days and days and weeks of meetings in the hopes of trying to find enough allies to help you change market rules so that you even have market access. I mean, that's a heavy lift. So we were thinking—again, that's maybe not general public, but some stakeholders that right now are having a hard time getting into those markets: Could an ombudsman help them?

Daniel Raimi: That's so interesting. Well, Kate, this is such a complex topic, but you've done such a good job of, as you said, giving us a 101 introduction to it. I hope people will explore the RTOGov project website, which of course we'll have a link to on the bottom of our page.

Let's close it out now with the same question that we ask all of our guests, which is to recommend something that's on the top of your literal or metaphorical reading stack.

I’ll start with a quick podcast recommendation that I got from my colleague, Karen Palmer. It's a podcast called How We Survive. It's from Marketplace—the NPR show—and it's by Molly Wood, who's one of their great reporters. The show is all about lithium mining—it's so good! It's about lithium mining in the United States. Lithium, of course, being the crucial ingredient for today's battery technologies that are so relevant to this conversation about RTOs and energy storage that we've been having. It's just really well-produced. It's really fun.

She takes road trips of the type, Kate, that I think you and I would both enjoy: two places in Oregon, and the Salton Sea in California, and all over the place. So yeah, I really recommend it; it's a really nice listen.

How about you, Kate? What's on the top of your stack?

Kate Konschnik: Well, since you mentioned lithium mining, I was between a couple things, but this is actually almost a couple years old now, but there's this Atlantic article by Will Hylton called “History's Largest Mining Operation Is About to Begin.” It's about seabed mining for rare earth minerals, or these energy transition minerals. The article blew my mind. It was just like a whole new frontier. I was learning in the article about creatures that I didn't know existed on the seabed and the fact that we are developing these giant machines to suck everything off the ocean floor. Just a really interesting article about the regulatory ins and outs with the International Seabed Mining Authority—I thought it really fascinating. Terrifying, but fascinating. Since you mentioned lithium, that's an article that I read almost two years ago and have gone back to several times.

Daniel Raimi: That's great. Well, we'll definitely have a link to that in the show notes. I haven't read that, so I'll have to put that on my list, as well. We've got mining the deep sea, we've got mining asteroids, we've got mining the moon and Mars, we're mining all over the place.

Kate Konschnik: Yeah. Really, it's like science fiction is here.

Daniel Raimi: Totally. Well, Kate Konschnik from Duke Law School, thank you so much for coming on Resources Radio today, helping us understand the ins and outs of RTOs and FERCs and NERCs and all the other acronyms. We just really appreciate it. It's great talking to you, as always.

Kate Konschnik: Oh, wonderful. I really appreciated being on the show, so thank you.

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Resources Radio is a podcast from Resources for the Future. RFF is an independent nonprofit research institution in Washington, DC. Our mission is to improve environmental, energy and natural resource decisions to impartial economic research and policy engagement.

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