A carpenter looking for a new hammer has hundreds of models to choose among. A backyard gardener can pick from thousands of tomato varietals. An equestrian has dozens of saddles and tack to suit his or her riding style.
But three of the Regional Transmission Organizations serving the northeastern part of the country offer entities buying power to supply the most sophisticated machine on earth, the U.S. power grid, only one generic capacity choice.
To best serve electricity consumers, it's best to have options, and serving consumer-members best is the goal of every electric cooperative, Jay Morrison, NRECA's vice president of regulatory affairs, told the recent Future Power Markets Summit in Washington, D.C.
RTOs excel at ensuring short-term reliability and low short-run marginal costs, he said. But electric cooperatives and other power utilities cannot meet the expectations of their regulators and consumers by focusing solely on short-term reliability and short-run marginal costs. They must provide more than just generic kilowatts to their consumers, and RTO capacity markets have become an impediment to satisfying these demands.
"There are all kinds of operational, economic, and policy reasons why wholesale customers, their retail consumers, and their regulators might prefer to invest in different resources, including long-term reliability, risk management, environmental performance, and others," Morrison told the group. "The centralized markets aren't designed to recognize and aren't capable of monetizing all of those other values."
He noted that electric co-ops, with their strong consumer focus, are leaders in things like demand response, community solar, wind power, advanced metering infrastructure (AMI) and integrating new technologies. But the one-dimensional nature of capacity markets makes it hard to realize the value of such products and services.
Morrison said co-ops can turn to bilateral markets, where they're able to transact with neighboring utilities, but recent moves by the RTOs now penalize such moves as "out-of-market" payments or subsidies.
He said recent orders from the Federal Energy Regulatory Commission that emphasize low marginal costs have exacerbated the problem.
"They're putting the RTO markets on top and demanding that everyone else dance to their tune," he said. "That's a mistake.
"The RTOs should be there to ensure that customers' choices and the choices of their utilities and their regulators can be delivered efficiently and reliably," Morrison added. "It's not up to the RTOs to say that minimizing marginal costs is the highest goal and anything else consumers and their political representatives want comes in second."
Morrison said there's still a clear role for centralized capacity markets as a place to buy and sell on the margin in the short term, but RTOs should adapt to facilitate other transactions.
"Allow the load-service entities to do the job right. Give them a choice," he said. "Let them build it themselves; buy from the bilateral market, and/or buy the standardized product.
"It starts with consumers. None of us would be in the room if not for the consumers. It's really about meeting their need in the way they define it."
NRECA was among the sponsors of the inaugural regulatory and market design meeting.