Can challenges or prize competitions solve water supply problems?

How can challenges or prize competitions help society address barriers that may prevent long-term access to low-cost water supplies?

The U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (EERE) has published a Request for Information, seeking information from the public to understand the key technical and other barriers that may prevent long-term access to low-cost water supplies that could be best addressed through challenges and prize competitions.

Water is essential for human health, economic growth, and agricultural productivity, and plays significant roles in the U.S. energy sector. The Department of Energy uses the term "energy-water nexus" to describe the interconnected nature of energy and water systems. While the U.S. has generally benefited from access to low-cost water supplies, according to the Energy Department, "new challenges are emerging that, if left unaddressed, could threaten this paradigm" including competing uses and water quality problems.

The Energy Department operates a variety of programs to advance domestic energy policy, including programs focused on research and development and grant funding. But could the Department of Energy be more effective by offering challenges or prize competitions? Unlike traditional R&D funding in which participants are selected up front with funding provided at the beginning in order to pursue a target or goal, challenges and prize competitions typically define a problem and offer a reward to anyone finding a solution.

Challenges and prize competitions have been adopted by the federal government as well as private actors. Since 2010, federal entities have awarded millions of dollars in prize money and other incentives through over 740 challenges and prize competitions, and nonprofits and private companies have launched many more.

In a Request for Information published in the Federal Register on March 19, 2018, the Energy Department identified challenges and prize competitions as "tools and approaches the Federal government and others can use to engage a broad range of stakeholders, including the general public, to develop solutions to difficult problems. Challenges and prize competitions rely on competitive structures to drive innovation among participants and usually offer rewards (financial and/or other) to winners and/or finalists."

Through the request, the Energy Department asks for public feedback on a variety of issues relating to using prizes and challenges to solve problems around the energy-water nexus, including an identification of challenges whose solution would allow for a significant increase in the volume of available water produced from non-traditional sources, significant improvements in industrial and power-sector water efficiency, or reductions in the cost to treat and deliver drinking water and wastewater to consumers without harming water quality.

Responses to the Request for Information are due no later than 5:00 p.m. (ET) on May 14, 2018.

NY considers ESCO reforms

New York utility regulators have launched consideration of reforms to how retail electricity suppliers called energy service companies or ESCOs operate in that state.  A December 2, 2016 notice issued by the New York Department of Public Service describes a history of "substantial overcharges and deceptive practices by the ESCO industry harming New York consumers," and establishes a process to "push ahead with reforms to ensure that ESCOs provide useful, value-added, economical services to New York consumers."  New York's ESCO reform process will play out in conjunction with other state initiatives, such as the Reforming the Energy Vision program.

As described in the Notice of Evidentiary and Collaborative Tracks and Deadline for Initial Testimony and Exhibits, the New York Public Service Commission initially opened up the energy services market to retail competition "to spur innovation in the creation of value-added products, particularly energy efficiency services that regulated rates may not provide, and to create commodity price competition that would result in efficiencies."  The notice summarizes the regulatory philosophies driving the historic decision to separate monopoly services (transmission and distribution) from competitive services (energy commodity), and the expectation that robust competitive markets would yield societal benefits.

But based on its "considerable experience with the offering of retail service to mass market customers by ESCOs," in 2014 the Commission determined "that the retail markets serving mass-market customers are not providing sufficient competition or innovation to properly serve consumers."  In the Commission's view, its subsequent efforts to realign the retail market have not succeeded: "customer abuses and overcharging persist, and there has been little innovation, particularly in the provision of energy efficiency and energy management services.  Commodity price differentiation has not worked, and the market for differentiated services is immature or non-existent."

For these reasons, on December 2, 2016, the Commission gave public notice that it "continues to examine measures that must be taken to ensure that these customers receive valuable services and pay just and reasonable rates for commodity and other services."  Among the measures identified for consideration by the Commission are:

• whether ESCOs should be completely prohibited from serving their current products to mass-market customers;
• whether the regulatory regime, rules and Uniform  Business Practices (UBP) applicable to ESCOs need to be modified to implement such a prohibition, to provide sufficient additional guidance as to acceptable rates and practices of ESCOs, or to create enforcement mechanisms to deter customer abuses and overcharging, including whether the Commission decision not to subject ESCOs to Article 4 of the Public Service Law should be revisited; and
• whether new ESCO rules and products can be developed that would provide sufficient real value to mass-market customers such that new products could be provided to them by ESCOs in the future in a manner that would ensure just and reasonable rates.

To pursue these efforts, the Commission established two procedural tracks.  An evidentiary track will consider the first two bullets listed above, while a "collaborative" track will focus on the third bullet. 

The Commission has previously described ESCO reforms as supportive of New York's Reforming the Energy Vision initiative, a comprehensive revisioning of the state's electricity sector.  In a February 2016 order, the Commission noted, "Development of markets in which vendors offer innovative services of value to consumers, and in which consumers can participate with confidence, is critically important to the success of the Reforming the Energy Vision (REV) initiative. Retail energy markets focused on commodity-only products, and in which ESCOs do not meet expectations of many customers, will thwart these objectives."

Initial pre-filed testimony and exhibits for the Track I evidentiary case on ESCO reforms are due on or before April 7, 2017.

ISONE External Market Monitor report 2015

A report by the New England electricity market's external monitor has found that "the markets performed competitively in 2015."

ISO New England operates wholesale electricity markets covering most of New England.  It employs two independent market monitors -- one internal to ISO-NE, one a hired external consultant -- to regularly review, analyze, and report on market results, and offer recommendations on market improvements.

Potomac Economics serves as the External Market Monitor for ISO-NE. In this role, it is charged with evaluating the competitive performance, design, and operation of the wholesale electricity markets operated by ISO-NE.  Last month, the external market monitor released its "2015 Assessment of the ISO New England Electricity Markets" (102-page PDF), presenting its perspective on the New England electricity markets.

Among other findings, the report notes that energy market trends "have been dominated by reductions in fuel prices over the last two years.  In particular, from 2014 to 2015:

• Natural gas prices declined more than 40 percent, falling to multi -year lows in mid -2015 largely because of higher shale production from the Marcellus and Utica regions; and

• Fuel oil prices fell by more than 35 percent because of increased global supply, and world liquefied natural gas (LNG) prices have fallen similarly. These reductions helped limit the increase in natural gas prices during tight gas supply conditions in the winter. 

The report notes that as a result, energy prices dropped 35 percent over the same time.  According to the external market monitor, "The strong relationship between energy and natural gas prices indicated by these results is expected in a well-functioning, competitive market. Natural gas-fired resources were the marginal source of supply in most intervals in 2015 and competition compels suppliers submit offers consistent with their marginal costs, most of which are resources’ fuel costs."

ISO New England's internal market monitor released its 2015 Annual Markets Report earlier this year.  That report similarly found that overall, "the ISO New England capacity, energy, and ancillary service markets performed well in 2015."

Landmark FERC electric orders promote fairness

The Federal Energy Regulatory Commission is the lead federal agency in a variety of energy-related fields.  FERC regulates the transmission and wholesale sales of electricity in interstate commerce, the transmission and sale of natural gas for resale in interstate commerce, and the transportation of oil by pipeline in interstate commerce.  FERC also approves the siting (and abandonment) of interstate natural gas pipelines and storage facilities, as well as siting applications for electric transmission projects under limited circumstances.  FERC also licenses and inspects private, municipal, and state hydroelectric projects.

FERC has issued a number of landmark orders pursuant to its jurisdiction over electric utilities.  These landmark orders focusing on promoting fair and competitive markets include:

• Order No. 888 (Transmission Open Access. Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities).  This landmark rulemaking fostered greater competition in wholesale power markets by reducing barriers to entry in the provision of transmission service.  Historically, vertically integrated utilities dominated the electric power industry.  Despite efforts to empower independent power producers and to promote competition, the Commission noted that “[b]ecause many traditional vertically integrated utilities still did not provide open access to third parties and favored their own generation if and when they provided transmission access to third parties, access to cheaper, more efficient generation sources remained limited.”  In 1996, the Commission adopted Order No. 888 prohibiting public utilities from using their monopoly power over transmission to unduly discriminate against others.  The Commission required interstate transmission utilities to file open access non-discriminatory transmission tariffs – Open Access Transmission Tariff or OATTs – containing minimum terms and conditions of non-discriminatory service. It also obligated such public utilities to “functionally unbundle” their generation and transmission services.
• Order No. 890.  An outgrowth of Docket Nos. RM05-17-000 & RM05-25-000 (Preventing Undue Discrimination and Preference in Transmission Service), Order No. 890 cracked down on opportunities for utilities to unduly discriminate against certain customers under the Commission’s pro forma OATT.  In Order No. 890, the Commission strengthened its pro forma OATT to remedy undue discrimination, facilitate the Commission’s enforcement, and increase transparency of transmission planning and use rules.
• Order No. 1000.  The result of Docket No. RM10-23-000 (Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities), FERC Order No. 1000 reforms how public utilities plan and pay for transmission upgrades.  Previously, grid operators had fairly broad discretion to determine who should pay for an approved transmission line -- all regional consumers, the subset of consumers benefited by the line, generators, or others.  FERC observed that the lack of a uniform framework for cost allocation decisions meant that on the one hand, consumers could be paying more for transmission than they should, while on the other hand renewable power projects might be stifled by a lack of transmission expansion.  To fix this problem, the Commission issued Order No. 1000 to provide a framework for fair and open evaluation of transmission needs and to allocate the costs of transmission solutions fairly to those who receive benefits from them.
• Order No. 719.  The product of Docket Nos. RM07-19-000 and AD07-7-000 (Wholesale Competition in Regions with Organized Electric Markets), Order No. 719 offered a series of reforms to improve the operation of organized wholesale electric power markets.  Based on the premise that improving the competitiveness of organized wholesale markets is integral to the Commission's mission, FERC required regional grid operators to reform their tariffs and practices in the areas of demand response, long-term power contracting, market monitoring, and the responsiveness grid operators to their customers – and through them, to the consumers who benefit from and pay for electricity services.
• Order No. 745.  The product of Docket No. RM10-17-000 (Demand Response Compensation in Organized Wholesale Energy Markets), Order No. 745 requires regional grid operators to compensate customers fairly for reducing their consumption of electric energy in response to the grid operator’s warnings of supply scarcity – demand response – when that reduction in energy use is cost-effective and capable of displacing the need to additional generation online.