S1E1: The Inaugural Podcast. Rob Gramlich speaks to the new grid-related priorities of the Biden administration and its FERC chairman, Rich Glick.

Host Bryan Lee talks with Rob Gramlich of Grid Strategies about the energy market and climate change priorities of the Biden administration and incoming Federal Energy Regulatory Commission Chairman Rich Glick.

Transcript

The Energy Markets Podcast, Episode 1, with Rob Gramlich

Transcript (edited for clarity purposes)

Intro: Welcome to the energy markets podcast, curated conversations with policy experts and thought leaders on how to chart the best path toward a 21st century clean energy economy. I’m your host Bryan Lee. My energy and environmental policy expertise stems from more than three decades of experience as a journalist, federal government official and utility executive. Our sound engineer is Martin Pell.

EMP: Welcome to the inaugural Energy Markets Podcast. I’m your host, Bryan Lee, and my guest today is Rob Gramlich of Grid Strategies. Welcome, Rob. Thanks for participating. 

RG: Great to be here, Bryan. 

EMP: Yeah, so we’re at the inaugural podcast recording, a day after the inauguration, and as we discussed a little preliminarily, before this, it seems to me that the markets are at an inflection point, and with a new administration in particular, we’re going to see a lot of change, perhaps rapidly perhaps not. It was interesting to me to hear how much climate change was discussed during the festivities yesterday. It seems to me that climate change will be a lodestar for energy market policy in the administration to come. Do you agree with that Rob? 

RG: Yeah, it’s clear climate change is a top priority. Every indication from every statement from Biden and Harris, as well as their appointees and the caliber of their appointees we’re just seeing now, indicates climate change will be a top priority and they're going to do everything in their power. 

EMP: Speaking of appointees we’ve got news this morning in terms of the FERC chair. 

RG: Yes, Rich Glick will be the chair. 

EMP: That’s awesome. You and I both have known Rich for a long time. But given we’re going to have climate change driving policy, we’re going to see a lot of blowback on that aren’t we? 

RG: Well, I don’t know. It’s really interesting to see the statements and actions from different groups like API coming out today saying they support regulation of methane emissions. You know, and it’ll be interesting to watch the Chamber of Commerce and EEI and other sort of mainstream groups who, you know, they want stability, right? And they want policies that are rational and workable. And they can see the writing on the wall. So, you know, what do they go along with? What do they agree to? I think it’s too early to say now what that will be, but I think actions by those groups, if they’re constructively engaged, could really influence what Congress comes up with. 

EMP: I guess I’m thinking a little more grassroots level in terms of the significant portion of the electorate that believes the election was stolen and believes that climate change is a socialist plot, and that’s going to drive a lot of opposition on the Hill. 

RG: It could with, with some, you know. I think if anybody can get bipartisan cooperation in the Senate, and the Senate is where it needs to happen, I think it’s Joe Biden. Whether he’s able to do that against those forces and everybody looking at different media than everybody else is, you know, remains to be seen. 

EMP: What do you think is going to be a top priority for Rich Glick as chair?

RG: Well, I’ve heard him speak. I’m sure most FERC watchers have heard Chairman Glick - first time I think I’ve said that - speak about robust infrastructure with remote renewable energy in mind and, you know, reliability and resilience in a system that relies on increasing share from remote and variable renewable resources. I’ve heard him talking about grid-enhancing technologies to deliver more over existing lines. And I think we’ve all heard him talk a lot about fair and open market rules that, in particular, things like, you know, we can talk about state policy, but market rules that do not penalize or counteract state, clean energy policies, but in fact, enable and support them. I think vigilant oversight has always been a mission of his. That’s not an area I’ve personally focused on as much, but I think he will be active in that area as well. 

EMP: Yeah, well, most of what you said initially were music to your ears as the president of grid strategies. Tell us about your consulting, and where you think that’s going to align with FERC policy going forward. 

RG: Sure, our theory of the world is that climate change is the most significant issue facing humanity. That known, commercially available technologies, including wind and solar, are one of the cheapest ways to reduce the emissions that cause climate change, and that the grid is the key to advancing those known resources. And that relates to both power markets and transmission operations and infrastructure. So, I’ve been working on that for my entire career, starting actually in college with my senior thesis, through years at FERC and PJM and the (American) Wind (Energy) Association. And my partner Michael Goggin has also been working on that pretty much his whole career. And we have now Jay Caspary, who was a transmission planner with SPP, with whom Michael and I worked for many years on all of these issues. And so, you know, that’s what we’re focused on. And yes, those priorities that Chairman Glick has spoken about before are all areas that we, we work hard on. 

EMP: I remember we had a discussion years ago - the traditional generators in the markets are feeling quite the pinch financially, that’s probably an understatement, and they continue to say that we can’t, you know, we can’t do it all with wind or solar - but you expressed the view to me, and correct me if I’m mischaracterizing it but, that if we have enough transmission, we can build enough wind, and particular out in the West, where even if the wind dies in a particular region, we can go to a different part where the wind is still robust and balance the grid. Is that accurate? Did I capture that right? 

RG: Exactly right. I mean, the wind is always blowing somewhere is, you know, is almost always true. But that’s the phenomenon that I think grid operators and planners need to start working with. To be a little bit more accurate about that, if you go like 400 miles away from the typical wind farm, the output from the wind farm over there is only about 20% correlated with the first one. So, you know when it’s going up in one place, it’s going down in another. And you know when you get solar across different time zones, then you’re integrating power at different times. So, I think there’s a lot we need to do, and we do need to do it quickly, to both operate in the day-to-day timeframe and plan and invest in the multi-year investment timeframe, for a different set of resources that fundamentally operate and behave differently from the fleet that we’ve built our electric industry on. The good news is that some of the institutions we’ve been working on, like large regional transmission organizations, happen to be perfectly suited for this new resource mix. So it’s not like we’re starting from, you know, with a blank slate. We’ve made progress in much of the country. But there are a number of things that need to be done, and FERC and the regional transmission organizations are front and center - in the middle - of a that evolution. 

EMP: Well, it’s interesting, you and I met for the first time back in ‘02 when I went to work at FERC and you were Pat Wood’s advisor. And there was a concerted effort by the Commission to put regional transmission organizations throughout the country. And you know we do have them particularly in the Northeast, the Midwest. We have one in Texas. But, where we had a lot of pushback, and a lot of politicization of the effort, was in the Pacific Northwest and the Southeast. Have we seen progress in those regions since then?

RG: A little bit. It’s been slow. And, yes, those were heady times there when, I remember Pat Wood, Nora Brownell and I and others were reading your stories with Dow Jones and Wall Street Journal and really liked them, and said, ‘Boy, we’ve got a communications challenge on our hand hands here, trying to advocate for competitive markets right after the California energy crisis fiasco.’ 

EMP: And the Enron cratering didn’t help either. 

RG: Yeah, and that was all part of it, and it was horrible black eye. And it was a terrible situation. So, you know, it was miraculous in hindsight that we got RTOs set up in SPP and MISO. And boy has that been beneficial. I mean, SPP gets up to 70% renewable energy at certain times, and wind is the leading source of electricity in that market, even without any kind of state (Renewable Energy Portfolio) RPS or anything like that driving policy there. 

EMP: You have the success in SPP, but you also have quite the success story in the Texas market as well in terms of wind integration. 

RG: Absolutely. Well, I think Texas is the best market structure for renewable energy and, of course, you and I were both proud to work for Pat Wood, who had set up that market before he came over to FERC. And it’s still working extremely well and, yeah, in the Northwest and the Southeast there are, I think, a lot of efforts right now realizing that they need to move power around. And to move power around geographically, you need to remove the seams. You need to enable large regional trading. And you need regional infrastructure. And I think there are ways to, you know, protect certain state roles, you know, no regulator loves to give up jurisdiction to another. But, you know the way we work things out in SPP, we’ve preserved and protected a number of things the state wanted to keep in their domain, while allowing regional infrastructure and operations to occur that FERC would help oversee. 

EMP: Yeah, but getting back to the Pacific Northwest in particular. You said, ‘to move power around’. A lot of what’s driving this is a need to integrate renewable energy. Isn’t that right?

RG: Absolutely. Well, you can look at the Pacific DC intertie, you know, built, actually 50 years ago at the urging of President Kennedy in the ‘60s. Energized in the ‘70s. And you can see on a daily basis power, you know, surplus solar moves out of California, up to the Northwest, and then it later in the day hydro moves down. I mean, that line was built to sell excess hydro down south. But it always moves back and forth on kind of a seasonal basis. Now you got, you know, the excess of one region’s solar kind of complementing the hydro of the other. And that’s again how we should expect a clean renewable energy-driven grid to operate with that power moving back and forth depending on where the renewables are being produced. 

EMP: Yeah well, back when Pat Wood and Nora Brownell were pushing markets - I still have the coffee cup Nora printed up for everybody involved with the Midwest ISO. It said ‘Markets or Die’ - and, but you know at that point the leading market was PJM. And you know it’s still the largest market. But it seems to me as an observer that we’re definitely at an inflection point there. And it touches on a number of things that we’ve been talking about here, you know, renewable energy versus traditional fossil fuel generators, who are feeling particularly aggrieved in the marketplace right now. And then there’s the whole tension between the states and the federal government over state subsidies for renewables and how those are treated in the interstate market. I assume that will be something that Rich Glick will try to address pretty quickly? 

RG: I believe so. And first I want to say the grid operators across the country do a tremendous job and a very difficult job. And I was proud to work at PJM for a couple of years and just found the whole group of real, real public servants working there. And that’s continued through recent management and current management. But, you know, there was a particular conflict that arose across each of the three northeast RTOs and ISOs, with PJM, New York and New England. And that was this interaction with state policy. And there are two fundamentally different kind of worldviews honestly about that. One, that is held by Rich Glick, and was recently echoed by new commissioner Allison Clements, and happens to be one that I share, is that if a clean energy source is supported by state policy, they can get the benefit of that state policy. And they can also sell any and all electricity products to the RTO, including selling capacity into the capacity market. I think the view of the RTOs and the previous FERC was that if you get a state subsidy, then you should not have full and equal participation in the capacity market. You have to have a higher bid to reflect the money you got from that other source. Which, I think everybody agrees on both sides that that has a tendency to raise prices. Now that, you know, the details have been through 18 iterations and, you know a lot of people say well now it’s not a big cost impact because of, you know, look at how these bid levels have been modified. And, I think that that kind of misses the larger point that, if you agree that state policies were actually intended to bring new resources into the market, and you know that it’s consistent with just and reasonable rates for those resources to also participate in the capacity markets and energy and ancillary services markets, that they should be able to do so without that bid increase, which is called minimum offer price rule, or MOPR, or in New York the buyer-side mitigation. So, you know this is evolving. I think the RTOs have already said at NARUC meetings that they don’t think MOPR is clearly sustainable. I think they’ve been trying to work with states and figure out something else. I think the next question now is, you know, is there necessarily a need to do anything other than just, you know, end that broad application of MOPR? I mean, I think you can just end it tomorrow and the markets would work fine. And would some conventional generators, then not clear in the market, and not get some revenue? I think that’s yes and that’s fine. I mean, investors make bets all the time, and many industries where, you know … and in just about every industry public policy is a factor. So public policy can come in and change and whether you’re in the healthcare, or real estate, or whatever market you’re in, and you know, risks are on the investors, that’s how markets work. 

EMP: I can hear the screams in many boardrooms right now. But I will say that it seems to me that we’re looking beyond just simply addressing the market rules but changing the markets entirely to price carbon. I know that’s been a discussion at FERC and, in fact, the embrace of that by Neil Chatterjee as the former FERC chairman led the Trump administration to fire him as chairman. They couldn’t fire him as a commissioner, but that provoked them enough to fire him as chairman, which was I think an unprecedented action in the history of FERC. Shouldn’t we take that sort of a top-down approach rather than have all the states doing this patchwork of approaches and, you know, doing their pet projects in each state? But, do it top down and have carbon priced right into the marketplace? Shouldn’t we dispatch according to the carbon output?

RG: Yes, well, and I think Commissioner Chatterjee has a couple badges of honor, including diversity training as well on that, so, you know, we like to see independent commissioners do things that that might annoy political figures. But, yes, I think almost everybody agrees that a more efficient way to go for the power sector would be to have a carbon price. And, even for it to be economywide. It can lead to efficient operations decisions, day-to-day planning decisions over time. So we’d all love to see that. That probably requires action by Congress. It’s a little early to say whether the, you know, the amount of cooperation you would need to get 60 votes in the Senate to do something like that is unclear. Within just the FERC world, whether FERC can do that on its own, I think it probably can under its (Federal Power Act Section) 206 authority. It’s obviously a much lower hurdle and easier under its (Section) 205 authority to accept something that comes from a region. And you know one way actually you might see that … you know, that’s been sort of stalled out. People thought we might see a proposal from New York, but New York, even with the current administration there, didn’t jump on the opportunity to actually set the carbon price. But you could see some interesting interactions going forward with EPA policy. The courts just handed back to EPA a golden opportunity to move forward some type of new Clean Power Plan that could lead to various state implementation plans, and that could potentially lead to implementation or facilitation through regional power markets and RTOs with FERC, you know, providing kind of an enabling facilitation role. So we could see some interesting things in that. As you know, having my primary training be in economics and my first paper I ever wrote was on carbon pricing back in 1992. Hey, you know I’d love to see policies turned into a carbon price and be efficient in that way. But that said, I know how hard that is politically. And I also think, you know, a livable planet is more important than necessarily the most efficient, and elegant, you know, electricity policy. So, states will proceed to have clean energy policies and I think they should. And I also think under the Federal Power Act they’re allowed to and FERC has to respect those. So you know we still could be looking at different valuations of environmental attributes from different states, which you know might be not be the ideal structure but, it is what it is. 

EMP: So, should we be taking a moderate approach, you know, turning the steamship by degrees or should we tear everything up and rewrite the whole structure? Should we have a bifurcated regulatory structure in which the retail markets are regulated by the states and the wholesale markets regulated by FERC?

RG: Well, I think, Congress could consider a reform of the Federal Power Act to make everything work better. I have a hard time seeing that really coming together. Maybe that’s a conversation for, you know, six or 12 months down the road. If a lot more cooperation opens up, bipartisan cooperation in the Senate in particular. So, in the here and now, I think we’re in a world where we have the authorities we have. I think FERC has a lot of authority to do more and better regional market operation and regional and interregional transmission planning. And I think they can do all of that while respecting state roles, so you know I see a lot of indications from Chairman Glick and new commissioner Clements that they want to work with states. New commissioner (Mark) Christie obviously has had a long history of working out, you know, state and regional market responsibilities. So I expect to see a lot of activity in that area that kind of work out compatible state and federal electricity policy. 

EMP: You mentioned that FERC has a lot of authority and that’s pretty true. I know that when the commission did orders 888 and 889, those orders were challenged all the way to the Supreme Court. And one of the arguments that was advanced by Enron was FERC’s jurisdiction over bundled transmission. And the Court said that FERC had jurisdiction over bundled transmission should it choose to exercise it. And I think other than SMD that’s been kind of a third rail that no one’s willing to touch it. Do you think we need to go there?

RG: Well, that’s interesting. Yeah, standard market design, SMD, that you and I worked on 20 years ago, you know, kind of during the firestorm and blowback after Enron and California led to difficulties advancing the competitive agenda. You know, that should be considered. Let me put it that way. I honestly haven’t thought a lot about it. I do think a lot about building up regional market trading through RTOs. And I think, you know, again, there’s more FERC can do there. And there is a lot more FERC can do on regional transmission planning and institutions and cost allocation that goes with that. And, of course, we’ve seen evolution and expansion of authorities related to demand response. And now with (FERC) Order 2022, distributed resources participating in wholesale markets. So, I wouldn’t be surprised to see more expansion in that direction because the reality is these are integrated machines that that go all the way down to retail levels and the reality is also that there are a lot of supply resources, and participating demand response resources at the demand side that are actively involved in, you know, can efficiently be part of the bulk power system. So I do think these interactions will increase and that will lead to more importance of the wholesale markets under FERC jurisdiction. 

RG: Okay, well, that is about it. We’re going to wrap things up here. I just thought I’d give you one last chance to reflect on anything that we haven’t brought up so far. 

RG: Well, not really. It is a really interesting time, and there have been so many dramatic changes and things going on in Washington. We’re still fresh off of the, you know, the riots in the Capitol. So I think everybody’s heads are spinning and it will take a little while for the dust to settle and to reset a new legislative agenda as we see President Biden put in place a lot of executive actions that they can take on their own. So really there’s a lot of opportunity for significant change if bipartisan cooperation actually comes together here. But I think it’s kind of too soon. There’s just so much bigger, so many bigger issues that kind of need to get resolved before our little corner of the world and electricity policy, you know, gets brought in for review. 

EMP: It is an interesting time we live in. Thanks Rob. I appreciate it very much and we'll talk to you again soon. 

RG: Great. Thanks, Bryan.

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