NW Energy Coalition

For Immediate Release 
Thursday, January 16, 2025

Seattle – On Thursday morning, January 16, 2025, the Federal Energy Regulatory Commission (FERC) approved the design of Markets+, one of two day-ahead markets being developed in the west. The FERC decision is just one procedural step as the Bonneville Power Administration and Northwest utilities continue to review the proposals and determine which market, if any, they should join. 

FERC has already approved the proposed Extended Day-Ahead Market (EDAM) as a companion to the Western Energy Imbalance Market which covers almost all of the Northwest and over 80% of the western grid. The primary issue remains: will Markets+ or WEIM/EDAM best enable reliable, affordable energy for Northwest electricity customers, accelerate our clean energy transition, and give each state and all interested parties a strong role in market governance.  

A thorough and balanced assessment is especially important for the Bonneville Power Administration, which is currently in a public review process on day-ahead market choice. All the economic analyses, including a detailed report sponsored by BPA itself as well as an independent study co-sponsored by NW Energy Coalition and others, shows that joining EDAM provides the greatest cost and reliability benefits, in the range of $100 million or more per year for BPA and its preference customer utilities, and even larger benefits to the Northwest as a whole.   

Furthering the case, in a December 13, 2024 letter to the BPA Administrator, Senators Cantwell and Murray of Washington and Senators Wyden and Merkley of Oregon observed,“[a]ny market choice must be driven by a strong business case—thus far, BPA has not been able to make this case for Markets+.”  

“The FERC tariff approval does not change the analysis that the other option, the Extended Day Ahead Market, is a better choice for the Northwest,” said Nancy Hirsh, executive director of NW Energy Coalition. “BPA has multiple obligations under federal law and serves all Northwest electricity consumers with its transmission system and federal power resources. BPA and all utilities should use this opportunity to assess the options and evaluate the best choice for our region to maintain affordable energy, increase reliability in the face of volatile weather, meet growing loads, and manage the clean energy transition.” 

BPA has suggested that the governance features of Markets+ outweigh the very large net economic benefits of EDAM. Meanwhile, however, the Pathways Initiative final proposal recommends that EDAM evolve to a fully independent western entity with open and transparent decision making balanced across utilities, independent power providers, customers, and states.

Ben Otto, NWEC’s representative in the Pathways process, said, “BPA must assess both developments, FERC’s decision and the evolving EDAM governance model to make the best decision for our region.” 

More information:
NW Energy Coalition: Background for FERC’s decision on SPP’s Markets+ Tariff

The NW Energy Coalition is an alliance of over 100 environmental, civic, and human service organizations, utilities, and businesses in Oregon, Washington, Idaho, Montana, and British Columbia, plus many individual members. NWEC has participated in all phases of western power market development over the last decade. 

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The post Press release: Federal Energy Regulatory Commission approves the design of Markets+; BPA should recognize that Extended Day Ahead Market is the best choice for the region  first appeared on NW Energy Coalition.

By Mike Goetz 

With the rising tide of inflation, increases in the cost of commodity goods, and energy infrastructure costs going up, the Northwest has an energy affordability challenge. With nearly 44% of U.S. households defined as low-income according to U.S. Department of Energy statistics in 2023, many customers are forced to make difficult decisions regarding whether they should use their limited income to buy groceries, necessary medication, or pay their utilities.  

The prices and terms of service of for-profit, investor-owned utilities are regulated by state utility commissions, who must balance the competing interests of the utility investor and customer when setting power and gas rates. Therefore, these state government agencies have considerable control over whether electricity and gas rates are affordable. 

Balancing reliability, affordability and climate goals is challenging but can be achieved simultaneously if utility commissions, utilities and other interested parties work together to advance creative solutions. To maintain affordability during a time of marked load growth and change in the utility sector, there are many tools that utility commissions can utilize. All utility customers deserve affordable rates and reliable services, and it is clear that the system demands and policy goals on utilities and regulators are driving unprecedented investments in infrastructure. In many ways, affordability is reliability, since utility disconnections resulting from a customer being unable to afford energy means that energy is not reliable to them. 

Utility rates are set by public utility commissions, who operate under a mandate to establish “just and reasonable” rates and to further the public interest. This term stems from a 1941 U.S. Supreme Court case entitled Federal Power Commission v. Hope Natural Gas.  The “Hope test”, as it is called, requires that public utility commissions set utility rates that must be affordable to the customer, but must also provide utilities the opportunity to recover their operating costs and earn a reasonable rate of return. When public utility commissions establish just and reasonable rates, they must consider new costs on the utility’s system, as well as new revenues.  

To truly determine whether rates are affordable, utility commissions should consider the impact of rate increases on the most vulnerable customers on the utility’s system who are experiencing the highest levels of energy burden. 

The mandate to establish just and reasonable rates affords utility commissions extensive flexibility in the setting of rates, and these agencies enjoy tremendously broad authority to regulate utilities. NWEC urges these agencies to use their authority to ensure affordability and reliable service. 

Rates must consider costs and revenues and be set on a holistic basis 

Utility rates are principally set in general rate cases, where utility commissions set rates based on a holistic look at costs and revenues from across the utility’s operations.  This perspective enables regulators the ability to set rates at a just and reasonable level overall. 

However, in many states—such as Oregon and Washington—there are more and more “single-issue ratemaking mechanisms” that allow utilities to recover costs for individual costs outside of general rate cases. Sometimes these mechanisms contain what is called an “earnings test,” which will only allow recovery of the costs if the utility is not already earning its approved return on investments. However, many of these mechanisms do not. This can allow utilities to continue to add costs to rates without any consideration of whether their revenue is already adequate or if certain costs have decreased in another part of their system.  Without an earnings test, this approach can quickly lead to rates that are unaffordable. 

Fortunately, we can fix this. Utility commissions should strive to eliminate as many single-issue ratemaking mechanisms as possible, and place earnings tests on the appropriate remaining mechanisms. While some single-issue ratemaking mechanisms exist because they are authorized by statute or are the most efficient way to recover certain costs—such as those that fluctuate wildly or only exist for a short duration—many are not. For these mechanisms, utility commissions should require that their costs be recovered in a general rate case rather than through a separate mechanism. Consolidating proceedings also conserves the resources of utility commission staff and intervenors, provides greater insight into the overall setting of rates, and allows regulators greater control to ensure that rates are affordable and the public interest is being furthered. 

Empowering customers to participate in the ratemaking process 

 A general rate case functions as a trial-like proceeding compressed into an approximately nine-month timeline, and the documentation in the proceeding can be extensive.  

Most rate cases require legal representation, and they are expensive and time-consuming to engage in. This means that few parties have access to the resources to participate, even though representatives of certain communities may be the hardest hit by the rate increase. 

To increase participation by community and small customer interests in these processes, utility commissions should implement intervenor funding to allow parties to be reimbursed for the time they have spent in the case. This practice exists in both Oregon and Washington and has greatly expanded overall participation. 

Additional strategies the Commission can utilize under its existing authority 

To minimize the impact on customers, utility commissions can do several things when establishing just and reasonable rates: 

• Rates and utility profit levels can be set at the lower end of a reasonable range, while still providing the utility adequate cost recovery; 

• Delay or phase in rate increases to minimize the near-term impact; 

• Move rate increases outside of winter and summer periods when customers will be hit the hardest since their bills are higher;  

• Conduct analyses to determine whether rates are affordable by requiring a low-income needs assessment or energy burden analysis; 

• When the needs of low-income customers are seen, utility commissions can implement programs such as low-income bill discounts or a percentage of income payment plan. 

• Apply an earnings test or other customer protection tool to variable and power costs. These variable costs include costs to purchase electricity on the market.   Utilities forecast their anticipated variable costs for the following year, and that forecast eventually goes into customer rates. After the year is over, utilities compare their actual costs to the forecast. In most states in the West, utilities can pass that difference on to customers. This means that the utility faces little incentive to manage its generating resources as efficiently as possible and reduce the risk of needing to purchase electricity from the market to keep their costs down. However, some states, including Oregon, place an earnings test and other customer protection measures on the true-up between forecasted and actual costs. This provides an important incentive to the utility and can save customers millions of dollars annually. 

• Adopt progressive resource planning processes that potentially include a greater level of involvement in utility resource procurement decision-making. Investments  that provide the greatest benefit to the system over the long run should be prioritized. For example, by investing in smart programs like energy efficiency and demand response, we can shave the peak needs of our system and avoid building costly investments in new power plants. 

• Carefully examine cost causation in the assessment of significant new loads driven by data centers and large industrial loads. Managing cost increases due to new infrastructure and resource procurement to serve these large facilities will be important to protect residential customers. Commissions should assess the need for new policies to address the impact of these large loads.    

While this blog covers a high-level view of utility ratemaking and the means by which commissions and interested parties can help ensure rates are affordable, it is only the tip of the iceberg. NWEC and allies are working tirelessly across our region to advance creative solutions to ensure affordable, clean and equitable energy solutions for all. 

The post Regulatory tools to advance affordability in utility costs first appeared on NW Energy Coalition.