 Welcome to SFI seminar series. So as I told for those of you who joined for the first time, please mute yourself when you're entering the room. And then during the talk, please use your raise and button for the questions. Since this is part of our education series too. So we will prioritize student questions first, but I will make sure that you will definitely have a chance to ask questions to Professor Bolton during or after the seminar. So today we have Professor Bolton, a visiting professor at Stanford now and a associate professor of law at University of South Carolina. Her research focuses on how climate change is transforming a energy and environmental law and governance, very interesting topic. And today she's gonna talk about improving electricity market through improving electricity forgiveness. So Professor Bolton, thanks for accepting our invitation today and please take the stage. All right, thank you all so much for joining. I really appreciate it. I'm really excited to get to talk about this with you all today. I'm gonna share some slides quickly. So I'm gonna talk today about improving electricity markets through improving electricity governance. And this is a talk that draws from research I've been doing over the last several years into the unusual way that we structure control over the electricity grid here in the United States and the effects that this institutional design has on electricity markets. Now I have a related article that's forthcoming. I would be happy to link to it in the chat but maybe you should watch the talk and see if you're still interested. And if so, I can put it in there at the end. So I'm particularly interested on how this governance infrastructure is affecting the clean energy transition. But before we get to that, I wanna walk through a few pieces of background for this talk. So I'm gonna start by talking about electricity markets and some of the ways that they can and should be reformed to incorporate new clean energy technologies which often also save consumers money. And here I'll draw from the work of a lot of other policy analysts and economists that have been working on these issues. And then I'll turn to my core argument in the second section here, which is that grid governance or the rules that we set up for who designs and runs these markets has emerged as a key impediment to making these cost saving and planet saving improvements. And then finally I'll end with concluding with a few thoughts about where we might go from here in terms of grid governance. And then I've tried to build in plenty of time at the end for Q and A. So I'm gonna start with just an oversimplified schematic of the electricity system. I'm not sure where we all began with our electricity knowledge. So let's start here. There's basically three parts of this system. There's generation, making electricity, there's transmission, moving it, and there's distribution from utilities to end use customers. Now traditionally all of these functions were performed by individual vertically integrated monopolies. They owned all parts of the system in their monopoly service territory. But as part of the deregulatory initiatives of the later part of the 20th century, ownership of these resources began to be split and a lot more sales occurred between utilities or other companies owning various parts of the system. That created the possibility for a lot of price discrimination. So utilities would charge other companies more to use their transmission lines. And so the Federal Energy Regulatory Commission or FERC increasingly intervened to try to ensure non-discriminatory access to the system. In the end, I'm gonna make a long story short and just explain that in the year 2000, FERC asked all utilities to join what are called regional transmission organizations or RTOs to run the grid. Okay, so most regions did as FERC asked. A few regions in white took a big pass on the idea. There's some interesting comparisons to draw out between the regions that decided not to form RTOs and the regions that did. I have a separate project working on that if anybody wants to talk about it. But for now, I really wanna focus on the two thirds of the country, at least as measured by population, that decided to form these RTOs. And I really wanna focus here because most experts agree that if we are going to accomplish anything close to the rapid decarbonization we need, it's gonna require more regional cooperation around the grid, not less. So I don't know that these areas in white really offer us a blueprint for moving forward. So in these regions that made RTOs, these organizations do several really important things. They manage the transmission grid and they set the rules to make sure that everybody has fair access, gets compensated appropriately. They also plan and figure out how to pay for new transmission. And they run a series of markets, my focus today, and I'm gonna get into the weeds of these markets in a minute. I just wanna make an overarching point here, which is that because RTOs run these markets, they also have to establish rules and policies regarding how energy gets priced in these markets and regarding eligibility to participate in these markets. So let's talk more about the details of these markets. There are three kinds of markets that exist in various RTO regions. First, all regions run energy markets that pay generators for megawatt hours that they produce. These are done day ahead and in real time. These should be kind of intuitive, I hope, where generators bid in electricity that they wanna sell and utilities buy what they need from these markets to serve their customers. Regions also run what are called ancillary services markets. These pay generators for providing other services to the grid. Basically the kinds of services that you need to keep the grid on it all the time because it requires a perfect supply, perfect balance of supply and demand. You can sell services that basically regulate that perfect balance at all times. And then finally, in some regions only, they have what are called capacity markets. And these pay generators for a promise to be available three years in the future if they're needed. Now, market is kind of a generous name for what these are. These are really like alternative administrative constructs to ensure that we have the future supply we need to meet future demand. You can think of it as kind of like a very market way of doing planning. And the idea here is that because it takes a long time to build generation, if you wanna make sure that you have not enough generation available down the road, you need to send some sort of long-term signals to generators to build this stuff. Now capacity markets aren't the only way this is done. In Texas, it's done through allowing very high energy market prices. We can come back and talk about that later if you all want to. In other places, they're not so comfortable with that price volatility. So in some states where the utilities still own a lot of the generation, they do this kind of long-term planning through state level regulation. But in certain regions, most notably these three regions, PJM, which is in the mid-Atlantic, ISO New England, which covers New England, and then NISO. These are the three regions where they've done the most divestment of generation, meaning they don't really have utilities that can do long-term planning who are making sure there's enough supply in the future. So they've opted to adopt these capacity markets in these regions. So one other point about how these markets operate, they operate through a principle of economic dispatch where generators bid in, the market clears at the marginal bid that you need to meet demand, and then all generators get paid that clearing price that have cleared the market. For those of you who are more into charts, I'm a lawyer, so I'm not, but if you are, then this is the same thing visually, right? They figure out how much demand they need to meet with supply. They have all of the generators bid in, they stack them up. They take whatever bids are lowest, but necessary to meet demand, and then everybody gets paid this price here. All right, so the theory is if you can supply some service economically, you're making a profit through the difference between your actual cost of service and the market clearing price here. Okay, so you may have noticed in my description of all of these markets, I keep saying generators, and traditionally it has been generators that supply these services, but more recently experts have come to recognize that there are other emerging technologies that are able to supply these same services often at lower cost. So many of the key technologies that have experts really excited here crop up on what has traditionally been thought of as the demand side of the system. So that's technologies like demand response or the cutting of demand at peak times in the system. It's technologies like small scale renewables, including a lot of rooftop solar these days, storage technologies for which the price is really plummeting. And here's an important emerging one, electric vehicles. Some people hold out hope that electric vehicles could eventually act maybe as like a giant battery for the grid, in addition to reducing transportation emissions, but their most pressing use is as a way to transition the transportation sector off of fossil fuels, which is now the sector that emits the most greenhouse gases today. Note that means that if we're gonna do this EV thing, this system is gonna have to double in size in order to accommodate all those EVs at the same time that we try to clean it up. So this is, there's a real tall task of transformation ahead for the system. So of course at the same time, you've got all these technologies emerging on the demand side. You've also got transformations happening on the supply side of the equation. So right now over 60% of our electricity still comes from fossil fuels, but renewable energy has been growing rapidly in particular in these places where there's been really strong state support of renewables. So I'll come back and talk about the impacts of this in a minute. So policy analysts and economists that have been looking at how these technologies interrelate with the market have found lots to be excited about. There's a lot of studies in this space. A lot of them are quite place specific. I'm just gonna give you a few examples here. The bottom line is that a lot of people are finding that these resources lower prices while also often bringing climate benefits. So just for example, an early study on demand response participation found that a 5% drop in peak demand can eliminate the need for installing and running some 635 and frequently used peaking power plants. That savings of 3 billion a year or 35 billion over two decades. Fast forward many years into the existence of demand response and a 2018 study finds that there's still significant potential for our demand response deployment. Regions are only deploying about 13,000 megawatts of an available almost 33,000 megawatts. Here's another study. This is about seasonal resources. So some resources are better in the winter or better in the summer. And a 2019 study found that if we were to make market rules such that these resources could participate and offer different amounts of the resource based on their seasonality, we might save 100 to 600 million per year on an enduring basis. Here's one more. This comes from the market monitor who's in charge of monitoring the vitality of the markets in the PJM region. And they found that if you have all these state-supported renewables coming in, if you do not let them participate in the market, we're talking about a cost potentially up to $8.4 billion annually. Okay. And then the last little bit of evidence I wanna talk about on lowering prices and climate benefits is a really complicated-looking chart that comes out of the Rocky Mountain Institute. I'm not gonna get into the weeds of this chart. I just wanna point on overarching concept. So this was a study that basically tried to catalog all of the different values that storage could bring to the grid. And the bottom line was, if you want storage to be getting the right signals about the extent to which it should be deployed, you need to pay it for all of the different things that it can do. And a particular interest to us is this category here, right? It finds that it can do a lot of things for RTO and ISO markets. And if you wanna optimally deploy it, you need to pay it for those things it can do in those markets. Okay. So the next question that I wanna talk about is, as a matter of theory, how should RTOs respond to this evidence that these new resources can do all of these things for their markets? So here there's really two driving concepts. One is the concept of just and reasonable rates and one is the concept of policy taking. So I need to get into a little bit of law for you to really understand these terms. In the United States, the key law that establishes control over the electricity grid is the Federal Power Act of 1935. And it grants states control over generation resources and over sales and delivery to end-use customers. So these areas I just put in green, state control. Then it grants the federal government, or more specifically FERC, control over interstate sales between utilities and over the transmission system. So this area in blue here. And FERC's job in particular is to ensure that utilities charge just and reasonable rates for all of the services that it regulates. The creation of RTOs and all of these markets is just FERC's latest theory of the best way to ensure that rates are kept as low as possible while running a reliable grid. So ideally, RTOs as creatures of this statutory mandate should be working to integrate any resources that lower prices. Now, at the same time, because states have control over generation, RTOs should be accepting whatever state policy priorities are for what resources they wanna put on the grid. I'll put an asterisk. They should accept them at least unless they somehow threaten system reliability in which case you might need FERC intervention. But I'll come back to that point. So that's a matter of theory. Next thing I wanna talk about is as a matter of practice, how are RTOs responding to this evidence? And in some cases, I'll say they're doing just fine. For example, the Southwest Power Pool where a lot of wind has come online has been really good at integrating that wind. California has been very active on promoting demand response and some of the small scale renewable resources. But in my project, I traced two pervasive and problematic ways that some RTOs as the governors of the grid are writing rules that disfavor these new clean energy resources and favor traditional resources. So one side of these challenges, which I call heel dragging, largely involves all the new resources cropping up over on the demand side of the system. Here, RTOs need to amend their market rules to allow these resources, which have characteristics that look pretty big from something like a big coal plant to compete in their markets. But they've been extremely slow to do so even though evidence suggests that these reforms would save consumers a lot of money. And so FERC has had to slowly force RTOs to include resources like demand response and energy storage in its markets. And it's done this through a series of long, slow orders and implementation processes that require RTOs to amend the tariffs they file with FERC to stop being unfair to these resources. So just for an example, it took 10 years, two orders and a legal battle all the way to the Supreme Court for demand response to win the right to participate fully in these markets. FERC also had to go in and order regions to incorporate storage into their markets. And the last example of this I'll offer comes from this past fall. In the latest order, FERC found, we affirm that existing RTO and ISO market rules are unjust and unreasonable because they present barriers to the participation of distributed energy resource aggregations in the RTO ISO markets. And such barriers reduce competition and fail to ensure just and reasonable rates. So FERC went on in this order to again, require these RTO regions to amend their rules to allow small scale renewables and other small distributed resources to participate in the markets. So at the same time this is going on, you've got the supply side of the equation here. Here they're erecting these new misguided barriers that are directed specifically at this state supported generation. Now I think to understand what's driving this, we have to take a step back and actually celebrate some good news on climate change. So here's the good news I wanna share. This is from a 2019 report out of UCLA's Luskin Center in which they found that one in three Americans now lives in a city or a state that's committed to or achieved 100% clean electricity. And if you look at the timeline, this is the timeline just of state adoptions, you see that this is a movement that's really picking up steam. Even during the Trump administration, which was not at all bullish on climate, you saw a lot of states stepping in to fill the gap. The latest numbers on this are that we're up to 42% of Americans at the end of 2020. So these mandates are translating into a huge amount of renewable energy coming online to compete in RTO markets. This should be good news, right? After all, more supply, lower prices, it's good for consumers, but RTOs haven't all greeted the news that way. Instead, particularly in the regions with capacity markets, incumbent suppliers have pushed a complex series of new rule changes in their markets that disadvantage renewable energy. The same renewable energy that states are now mandating be built under this movement here. So to explain this, I'm gonna produce a really simplified, stylized version of a capacity market. So here we have on the X axis, we have the megawatts promised to be available three years in the future. And on the Y axis, I have the dollars per megawatt day that a supplier would have to be paid in order to make that supply available in three years. So what regions do in these markets is they come up with an administratively determined demand curve, right? They decide how much demand do we anticipate three years in the future? That's how much supply we need to make sure is available. The demand curve looks something like this. It's capped at the price of a new natural gas combined cycle turbine because we wouldn't wanna pay more than what we know is the market price of that. So here's your demand curve for the region. And then various generators bid in the price at which they'd be willing to guarantee future supply. And the region adds up all these bids and it ends up creating a supply curve maybe kind of like this or maybe kind of like this. I don't really know. This is a stylized version. Okay, so where they meet that's the price that all capacity gets paid. And then everybody on this side clears the market and makes that price. So in recent years, as Eastern States have pursued more aggressive state renewable energy goals the price of renewable energy has also come down dramatically. Not entirely related but somewhat related. The result is that you have more renewable energy bidding into these markets promising to be available in three years. And renewable energy because it's quite capital intensive once it's built, it's very cheap to operate. And so these renewable resources tend to bid in as price takers which is to say they tend to bid in at zero because they'll take whatever price the market clears and gives them. That means that these resources are reducing the price of capacity in these markets, right? Again, this is totally stylized but more renewable bids in and they're end up reducing the price of capacity in these markets. Great for consumers who are paying less for capacity all while decarbonizing. And yet in both PJM and ISO New England the regions have strongly resisted this trend. They've instead suggested that these resources are distorting the market such that they should be subject to what is called the region's minimum offer price rule or MOPER which has become like the acronym from hell for everybody that works in this space. So the original idea of a MOPER was that RTOs were worried about certain large holding companies that own both supply and demand. They were worried that these companies might use their control over both sides of the market to distort prices. And so they set up minimum offer prices, price rules or minimum bids for these companies that were calculated based on the market price of the technology. Now what these regions have decided is that the same MOPER concept should apply to resources that are state supported. Now that means that any renewable resource that receives state support as it's defined in the region's tariff now has to bid in at an administratively determined level and it's a level that often makes it hard to clear in these markets. MOPER's are actually resource specific but I'm just adding like a generic concept line here for effect. So the end result is that states are still building this renewable energy because they have to by law but now they don't get to count it as capacity in regional markets. And so their customers are forced to pay billions of dollars for extra fossil fuel capacity that the states don't need. I'll note one response I get to this presentation is that maybe these changes are actually driven by reliability concerns, right? Maybe what regions are worried about is that we need enough firm capacity or flexible but non-intermittent capacity to keep the lights on at all times. And my response is that that's an entirely reasonable concern. Renewable energy is definitely gonna present new challenges for these markets and they may need different kinds of backup services but capacity markets do not solve for this. They're not paying only fossil fuels that are available to balance renewable energy and they're not paying plenty of other resources that could do so. In addition, the regions have not described reliability as their key concern here because it's not really at least at the moment. These regions are very long on supply so there's not really a reliability challenge. And then the last point I'll make here is that this concept of state support and walling out and subjecting to the MOPA only resources that receive state support is not really coherent at all. Fossil fuels have over time gotten enormous amounts of federal and state support but the MOPA revisions are specifically targeted to state support of renewable resources. So now we get to the question that I know everybody's just burning with which is why are these RTOs heel dragging on worthwhile reforms and erecting these kinds of new misguided barriers? And this brings me to the key argument in my project which is that in many regions, privatized grid governance is emerging as one of the key hurdles to hard-earned democratic progress on climate change. So I think the best way to understand this is to go back to the RTO construct and think about how these RTOs are set up and how they make their rules about matters such as eligibility to participate in regional markets. So when we try to think about how RTOs make their rules, I'll note there are a lot of regional divergences that escape generalization. Uniquely, KAISO, which is your ISO, your RTO runs pretty much functionally like a state agency. So the governor decides who's going to be on the board of KAISO. There's no membership of KAISO. And they make rules through classic agency notice and comment rulemaking. But the other RTOs are far more privatized. So I argue that they have many of the hallmarks of the new governance or the reinventing government movements that were very much in vogue at the time of their creation. They're not-for-profit voluntary membership clubs which utilities can choose to join if they want to. They're overseen by board of directors which can't have financial interests in any members but they typically are industry insiders. And the rules are established primarily through membership voting processes. So just to give you a sense of what this looks like. In PJM, which is the largest RTO, they use what's called weighted sectoral voting. So each of these five sectors gets 20% of the vote. And then a proposal has to get a super majority of all the votes to be approved. And then in all regions, although it varies as to what issues by region, the independent boards at least have some authority to file rule changes with FERC. So I can see why RTOs made a fair amount of sense to FERC in the late 1990s. The industry was just chugging along with limited political pressures to really change sources of electricity. And they really just needed some rules for reciprocal fair dealing in the new markets that they were creating. However, in the decade since, there's emerged a definite clash between this privatized model of grid governance and the climate change challenge. So when it comes to heel dragging, remember RTOs have been very slow to incorporate a lot of new technologies in their markets, even though they're cost saving. And that's because these technologies threaten the bottom line of incumbent transmission and generation resources who make their money off of building more supply-side infrastructure. Now, when it comes to these new barriers, like the Expanded Mober I was just talking about, many incumbent generators within RTOs are not at all pleased that states are mandating the aggressive adoption of renewable energy resources, which of course by adding supply drives down the price in RTO markets. This is particularly a threat to companies with substantial natural gas resources who've made recent long-lived infrastructure investments that they're afraid that they're not gonna recoup if renewables continue their ascent. And I'll note, the changes in the Mober actually failed to get super-majority support in the regional membership voting processes, although they did come close in both regions. And states in these regions went to the boards of the RTOs and pleaded with them not to file these changes that would undermine state policies. But the board was unswayed by state pleas. Many suspect because they have obvious institutional interest in keeping large members happy given the voluntary nature of organization. And so the RTO boards filed these changes over state protests and FERC accepted them on misguided rationales grounded in investor confidence, even though states said we don't want investors to be confident in building new unnecessary fossil fuel generating capacity that we are lawfully trying to phase out of our resource mix. Now, a lot of commentators have recognized the perversity of these reforms, not least FERC commissioner Glick, who's now chairman Glick, who wrote scathing dissents from both orders. And these dissents got some press coverage. Here's one, FERC moved to raise PJM capacity market bids shows clear bias against new clean generation Glick. And state commissioners have continued to object to these ongoing challenges. So here's a headline from January, 2021. PJM utilities messing with sovereignty is the biggest threat to climate goals. That's from the Maryland commissioner. Now, here's the most mainstream publication I could find that was covering these reforms. Utility that great, great trade publication, not exactly mainstream media. So here's a perfect example of a reform that has major impacts on the clean energy transition happening behind the scenes in these private processes out of the media spotlight. But with the same effect as a lot of the Trump administration's more public pronouncements about saving fossil fuels. I'm gonna offer you have one more quote here. This is from Devin Hartman of the R Street Institute, who says, a graceful transition from MOPER is imperative for the long-term political support of independent power generation, said Hartman. MOPER is not only causing states to rethink their participation in organized markets, but it's deterring stakeholders in the West and Southeast from forming an RTO. So as this quote might suggest, people are starting to rethink MOPER as a strategy. They're going back and they're saying, maybe this wasn't the right way to address the tensions in these markets. And they're seeing MOPER as the big impediment to RTOs working going forward. I wanna suggest that the problem is much broader than MOPER alone, right? I think that this universe of examples helps to illustrate that it's privatized grid governance itself that's emerging as a serious threat to progress on clean energy. Whether or not these proposals proceed or fail to proceed through the RTO's putatively democratic processes for members or they get passed on by the board after having failed these processes, there's a substantial gap in democratic legitimacy and public accountability in RTO governance. So many researchers, especially outside the field of law have begun to realize some of these difficulties in RTO governance but the predominant preferred solution to date has been to reform these internal processes, right? So maybe you shift a few votes to renewable energy entrance or you put a public representative on the board. I think these are good ideas but I also think that they're far too enemic. The problem is that privatized governance by industry incumbents just doesn't make sense in an era in which the entire sector needs to transform. So as I see it, the problem with RTOs is really one of two public private accountability gaps, one between states and RTOs and one between FERC and RTOs. So let me say a few words about each of those. States, remember by statute, are given control over their generation mix but the reforms that RTOs are putting in place subvert existing state clean energy goals and they're likely over time to impede adoption of new renewable energy mandates or policies and yet states have almost no control within RTO governance. Although there are these committees called regional state committees that exist in every RTO, they're usually relegated to a very weak advisory role. The second accountability gap is between FERC and the RTOs. So one fair argument to make about some of these challenges is that FERC is the problem, the agency approved the MOPA changes, for example. And in part, I completely agree. Like FERC has long been a bulwark independent agency committed to neutral markets and that reputation really did come under fire in the Trump administration. But I think that the structure of RTOs also facilitates this in some problematic ways across presidential administrations. Because FERC used its longstanding Federal Power Act authority to create RTOs, it regulates them as normal public utilities under the act. And courts have said to FERC that in this role, it has to be passive and reactive and it can force changes in utility practices only if the practices are entirely outside the zone of reasonableness. Note for my lawyers and aspiring lawyers that might be joining us, that's a framework that looks really different from the normal broad deference that agencies enjoy to implement their preferred policy solutions under Chevron. It makes it hard for FERC to force beneficial changes even when the agency wants to be proactive. And it gives commissioners that are sympathetic to fossil fuel incumbents substantial cover to passively and reactively accept biased rule revisions. So that brings into the final thing that I wanna discuss, which is what might we do about this problem? There's a lot of excitement right now about the powers that a Biden FERC might have to fight climate change. And it's gonna be tempting for the commission under its new leadership to go full steam ahead on pursuing substantive reforms. But one key reason that I engaged in this project was to make the case that governance reform, tedious though it may be, may be a key precondition to durable rapid progress on substantive climate policies. So I wanna highlight two such reforms that I see as particularly promising steps that the new administration might take. And then I'll also raise one more provocative solution. So the first thing I wanna emphasize here is we can't just unwind. As I said earlier, renewable energy requires a more integrated grid. So we've gotta figure out a way to make better RTOs. States exiting RTOs is not a good solution here. So one option is we might give states more control within RTO rulemaking. We could let regional state committees have a super majority veto point over RTO proposals, at least on matters that touch state interests, or they could be given the right to file their own competing proposals with FERC. Second policy option is to stop regulating these RTOs as plain vanilla utilities and recognize them as the policy making bodies that they are. Ideally, that might be done through a statutory rewrite that gives FERC more authority to oversee RTO rulemaking practices, but even acting alone, FERC could get much more muscular here. So finally, a more radical option. We could consider a more thoroughgoing set of reforms to make our grid operators public. That could either be through public ownership of transmission assets themselves or through public control over RTOs with agency style leadership rather than private membership clubs. That would bring the system on a national level a lot closer to the tight governmental control that California exercises on a regional level, which has really helped align RTO goals and state prerogatives in your state. So I'll conclude by noting that normally, I toil in obscurity on the topic of grid governance. It's hard to get people to pay attention to it, but it has unfortunately been thrust to the top of national headlines in the past several weeks. As Texas has experienced its deadly blackouts amid freezing temperatures that can be traced at least in part, the blackouts can be traced at least in part to governance challenges. And these challenges are only gonna get more acute going forward. The less we mitigate climate change, the more we're going to have to adapt our grid to it. And in both cases, mitigation and adaptation, I would suggest that we want publicly accountable officials in charge of making the difficult choices that we're gonna face about how fast and how to integrate new resources into the system and how to balance this challenge with ensuring the reliability of the grid under ever worsening severe weather conditions. So in sum, I think we need grid governing institutions who can use electricity markets as the tool that they are, which is a system for delivering affordable, reliable power that doesn't threaten the future stability of the grid, humanity or the planet. So I'm gonna end there and I really look forward to our discussion. Dieng, Min, I see your hand, yeah. Thank you very much for the presentation, very interesting. And there's a question regarding, if we look at the opposite side and the two regions don't have the forward capacity market or capacity market, one is Texas, one is California, but both state, both Kaizo and ERCOT experienced the fire and also the winters. And a lot of people blame that because they don't have the, I mean, especially Texas is the energy only market. And they don't have the enough resource to supply demand in extreme events, especially is whether induced or climate induced events. And what's your perspective on that? Yeah, I mean, I think this is a critical question, right? Like, would capacity markets solve the problems that these regions are facing? I'll note, so there's a couple other regions that don't have capacity markets either. So the Midwest has an optional capacity market, but you don't have to participate. States have a lot more control. And the Southwest Power Pool doesn't have a capacity market either. States have much more control there as well. But California and Texas are the ones that are in the news because they've experienced the most challenges recently. On the California example, what I will say is that the state and Kaizo already work together to plan for future capacity, right? So if they were to implement a market construct to carry out their planning, it wouldn't functionally have caused them to plan for a different amount of resources, right? So I do not think that a capacity market would solve California's problems here. I think that California is gonna have some real challenges about forecasting and interconnections and how to balance its system going forward. But I'm not sure that capacity markets would have changed the outcomes recently. In Texas, I think the question is more complicated. So Texas's theory of how it's going to have enough future supply to meet future demand is show really high prices in the energy market during critical peak times. And generators will be incentivized to build future demand knowing that they're going to get those kinds of prices in the future when you have critical events. Now, Texas at the same time does have people in there doing forecasting, trying to figure out what's the worst case scenario and is our system capable of meeting it? And they got it wrong. They got it wrong by several gigawatts and that's a big part of the blackouts is that they just didn't forecast. They were ever going to have the kind of demand that they had because of the extreme cold coupled with a lot of electric heat. And they over forecast the amount of supply that would be available to meet that demand, largely because none of the supply was winterized. So if they had had a capacity market based on their forecasts, it would not have solved their problems either because they've got the numbers wrong. What I have heard suggested is that capacity markets present regulators though with a moment to sort of look ahead and ask, are we good? Do we think we have what we need? And perhaps if you'd had more of a regulatory apparatus, they could have taken the time of forecasting to also think, gee, we probably need to winterize or else we're not gonna be able to count on any of this capacity that we're putting into our forecast. Capacity markets might have provided a moment of intervention to do that, but they would have had to have that foresight in order to abuse capacity markets in that way. So I think it's sort of an incomplete solution to both regions' problems. Thank you. Thank you. Professor Thompson. So Shelley, as you know, I like this paper and enjoyed the presentation. Two questions. The first is, you noted earlier that a lot of the RTOs have a weighted voting system and I'm just curious on the moper votes, were there splits based on which sector had particular votes? So I'm just sort of curious as to what you see when you actually look inside the RTOs. And then the other thing is, you've set out basically three alternatives. And personally, I think the most interesting are taking a firmer hand, as well as yours of just making these public entities. And on that, the choice presumably comes down to a question of number one, is there any benefit to having the private companies playing a decision-making role? That if there's a real value there, that would push in favor of letting them continue that, but make sure that FERC can come in and intervene when necessary. And on the other hand, there's the question of, if you leave the private entities in control, will they simply find a way around whatever FERC does so that you're constantly having to chase down their efforts to undermine renewable energy? So I'm sort of curious on that second question, I'm curious as to how you see those pros and cons. Yeah, thanks, Buzz. Those are great questions. First on sort of the details of this weighted voting, so when it came to the MOPA reforms, as I mentioned, they did not get through the regional processes. So they came really close in both regions. The regions were voting on a number of potential reforms and MOPA got in the low 60s, you need 66 and two thirds percent to get your supermajority. And if you looked at who blocked it, it was mostly the demand side entities, right? So the entities that were going to be buying capacity out of these markets that were benefiting from lower capacity prices did not want these MOPAs in place. The supply side of the system and the transmission owners to a certain extent because they like to send power through the system were the ones who were in favor of MOPA. Interestingly though, the option that got the very lowest vote in these regional voting processes was status quo. So everyone was like, it's broken. We cannot keep it like it is, but they could not come to any sort of regional consensus about the right way to fix it. I would argue largely because they're voting along, their private interested lines and it's very hard to create a public system out of just hoping to amass a whole lot of private interests and getting there. This question about what are the potential sort of dynamics of the reforms, I think is critical. So is there a benefit to having private firms continue to exist in this space? I mean, one benefit I'll say is that like to not have private firms in this space would just be like the litigation headache of a century in terms of trying to establish valuation and have the federal government condemn these via eminent domain or whatever it would have to do. Practically speaking, it's probably not that practical that we get private entities completely out of this space. But in terms of like actual benefits that we would get from having private entities continue, what I'll say is that everybody that's involved in this system is not an enemy of the clean energy transition. So a few things that we know about how we have to transition are, we've got to build absolutely tons more transmission lines. And right now, private utilities make a lot of money from building transmission lines. They are not the key impediment to us having more transmission in this country, right? So I think there could be a lot of benefit for figuring out how to do transmission right and continuing to use private companies as the ones that build these lines. They're good at it, they make money from it. There's no misalignment of incentives. And the other fundamental fact is we're gonna want people to keep delivering us the electricity long into the future, right? So like utilities that don't own fossil fuel generation also could completely be partners in this transition. The hard part is figuring out how to get the incentives right to make them partners. And a lot of states are working very hard on this question of like, how do you incentivize a utility to be something very different than a central station generation delivery machine? But I think there's a lot of creative ideas out there. And I think that that could be like figuring out how to harness these utilities instead of fight them might be a really good way forward, especially cause the system needs to double in size. So they've got a lot to potentially gain here too, right? Like if we can figure out how to harness private capital in the public interest, I think that's a great way forward. On your point though, that like will they continue to end run and try and subvert some of these goals? Sure, right? Like I think that's just the nature of the beast. But what I would love to see is a system that gives FERC some more direct levers to at least try and counteract that, right? So the way that FERC operates now, it has to go out and make a complex finding that there's something wrong in the markets. And then it gives every region the chance to fix it themselves through these governance processes with all of their voting flaws. That takes a long time. Maybe it takes a year or maybe it takes a year and a half. Then they get a filing from the region and the region says, here's how we propose to fix it. And FERC has to either take or leave that solution in its entirety. And at that point, FERC has identified a problem. It's waited a year and a half. And it certainly doesn't wanna say, forget it, start over. But it often has to take these really flawed solutions if it wants to move forward. And so if you had a system where that was not the dynamic between regulatory and regulatory, I think you would see less opportunity for these private entities really subverting the will of FERC. So that's maybe not a perfect answer. That's sort of my best stab at it. Thank you. I see Alessia on the chat has a question. Do you wanna ask directly to Professor Bolton? Yes, please. Dear moderator, the colleagues of the participants of a seminar, dear guests and invitees, thank you for the opportunity to participate in this event. My name is Alessia Vyacheslavovna Kachetkova. I have a scientific degree of the candidate of sciences in economics, 2008 from the St. Petersburg State University of Economics and Finance, Russian Federation. I thank Professor Bolton for the presentation and I won't ask my core question. Please, please justify an importance for changing nature of the generation portfolios in the regulation of international electricity trade among the United States, Canada and Mexico as a system of the new techniques on development stage of the eliminating criteria of impact at the reliability of the US electric power supply system that may represent an opportunity for increased trade in line with their pursuit of innovative and environmental goals. Thank you. Okay, thanks for your question. I'll take a stab at it. I'm not sure that I have like a full answer, but you know, so I mean, one thing I'll say is that these state goals that we're pursuing here in the US are very much related to a lot of the developments of these technologies overseas, right? So like when we think about the relationship between China and the US going forward, the ways in which we approach trade with China on solar panels will have a super critical effect on the prices that we'll be able to get for renewables here in the States and the extent to which we'll be able to deploy things like very cost effective rooftop solar. So I do think that there's a pretty direct linkage between a lot of the issues of how it is that we're going to decarbonize the grid here and the ways in which we establish trade rules that are gonna give us the potential to use technologies that are really coming down in cost because of a much more international system of trade. So that's sort of like a first level response. Feel free to follow up if you had a more specific question you wanted me to touch on. Thank you very much. Thank you. And now Amber Hork. I don't know very much about kind of electricity governance and this was extremely informative. I feel like I've learned quite a bit, although obviously still very new to me. So I'm just kind of curious, particularly when you your comment on the idea of the way Texas works is they want to incentivize the capacity to sit and wait on the basis that when these types of climate change disasters occur and prices skyrocket, they'll get paid for sitting and waiting. So there's something in that kind of system that should ring very, very unfair and unjust and should not apply in lifesaving situations. We might think in a country as rich as the United States because then it becomes a pay to survive type of situation. This is gonna be tested in Texas. People have got their $10,000, $50,000 electric bills. So this is gonna be tested coming up legally. But then I wondered what if we split the baby with the bathwater and the public side takes care of that generation, right? Taxpayers invest in that capacity. So it prevents the spike in the pay to survive climate disaster scenario, but leave intact the private system that works in these non catastrophic scenarios. And it's similar to the way we might think healthcare has performed a little bit in COVID, right? Healthcare is one of these private industries in the US where you're always like trying to balance having just the right amount of full beds, right? Because it's a private industry. So you're trying to incentivize, you have a little bit of capacity but on extra beds but you never want too much. And then you have something like a pandemic which just pushes those incentives well beyond the boundaries. And that's kind of something we're seeing maybe in these type of electricity catastrophes. So could that possibly be a solution to compete with your kind of three alternatives or maybe that's just worse than all of them? No, I think this is a really nuanced question. It's great. So I will note first of all, like I think that the solution that you are coming up with might be capacity markets actually, right? Like the way the capacity markets work as they basically say, we as a public are gonna commit to paying to make sure that we have enough generation available. Now it's not publicly owned generation. It's privately owned generation. But the idea is we're gonna pay to make sure it's there when we need it, right? So then you just wade into the debate of is a capacity market the best way to ensure this generation when you need it? And if you design it properly, a lot of people say, yes, it is. And then a lot of people say, no, it's not especially under changing climate conditions, right? The challenge with capacity markets under changing climate conditions is that we actually are really gonna need something very different out of our grid backup when it's a lot of renewables or we're gonna need flexible resources. It's not resources that can like promise to be available all the time, three years in the future, but resources that say I'll be there to back up your renewables three years in the future. So I think we're probably gonna at least need tweaks, but I think your point is well made, which is that there's a lot of reticence among policymakers to allow the market to dictate whether or not the lights are gonna be on in three years, right? And Texas has sort of flirted at the margins of all of this for a long time and has gotten away with not having their lights go off a bunch of times and then didn't get away with it this time. And I think there's a serious sense in Texas, their impulse there seems to be post blackout exactly your impulse, which is to say, some of this can't be left to the market in the future, right? So things like weathered plants or weatherized probably shouldn't be left to the market. They bet that it was gonna incentivize plants to weatherize to have these high prices. It did not send them the signals that they hoped. I think that they will probably take a hard look at mandating weatherization in the future. I think the other piece of the puzzle that has really bitten Texas is the fact that, and I didn't get into this in the talk, but Texas has not only a completely deregulated wholesale market between generators and buyers, it has a completely deregulated retail market, right? So anybody can go out. Well, I mean, you have to get certified, but people can go out and become electricity providers and everybody in Texas has to go out and pick from this marketplace of providers, right? That's what led to those price spikes on the retail end of the system was that people were signing up with providers without any notion that what they were doing was signing up to see complete real-time prices that could spike above $9,000 per megawatt hour. And so I think there's a real sense from regulators that that should not be allowed to happen anymore, right? Like consumers do not need so much choice that they can get themselves into those kinds of situations. So I bet we're gonna see some protections come on board that basically say like, we actually as regulators have a commitment to protect consumers against volatility beyond some level that we're comfortable with. Awesome, thank you. Yeah, thanks for the question. Thanks. Oh, why he left? Yeah, hi, Shelly. I'm very curious about the role of increasing interconnection. So ERCOT is not interconnected to any of the other transmission networks. And obviously that would have changed the experience of they've been able to import power. And certainly as we have more and more renewables on board, we're gonna have massive fluctuations in different regions. So I'm curious what your thoughts are about how we regulate an increase in interconnection. Yeah, this is super critical. And I will say, I think it ties completely to grid governance, right? So Texas obviously is Texas. They have said they have no interest in interconnecting even after these disasters. I've seen a lot of chatter that like maybe interconnection wouldn't have helped them that much here because the regions that they probably would have connected to were also experiencing shortages and freezes. But in any event, like it's pretty clear that if we had broad national, especially East-West interconnections, it would definitely be better for the system. What's holding us back? Well, California has been looking at interconnecting with its neighbors, but it doesn't wanna give up the system of tight governmental control that it has over its RTO. The Southeast has been looking at interconnecting, but it hates the idea that the states would have to give up a whole bunch of control to FERC because they don't like all this stuff that's been going on in the fights between feds and states over RTOs. And so I think that actually the nut to crack here might be the governance nut, right? Like if we can figure out how to come up with some governance constructs where California doesn't feel like it has to give up its sovereignty to join an RTO, and Southern states don't feel like all of their powers suddenly gonna be usurped by FERC if they join an RTO. I think we might actually see more progress in this direction. Like I think this is very much a governance challenge. Transmission has some other challenges that aren't just about, you know, expanding RTOs. We need definitely some ability to override state-citing decisions that are very parochial. But I should probably stop because their transmission is a whole other beast, but I do think it's very connected to this RTO governance issue. Thank you. Thank you, Professor Walton. We are very on time. So woo-hoo, we had it. So thank you. And I learned a lot from today's session. And then Professor Walton, you're actually doing on your mini-visit to Stanford, virtual visit to Stanford this time, right? So, yeah. I think this is my last event. So thank you all for having me very much. Okay, and then, you know, you can actually see Professor Walton's emails and profiles and all those, you know, recent publications and research on the link that we posted on SFI website. So you can find more about her work. So I'd like thanks, Professor Walton. And it's great to see you here. Thank you all so much for having me. Thanks, Aleutian. So young for organizing it. So glad I worked out. It was terrific. Thanks. Thank you. Bye-bye.