Competitive markets might not have the same level of support as they did early in Pat Wood’s career, but the former FERC chair believes the politics will swing back in their direction.
“Growing up in the Reagan era, you did have a big faith in free markets,” Wood told Yes Energy’s EMPOWER Conference on March 5 in Denver. “I know that’s a little bit under attack these days, but I think truth will prevail. We’ll get through this rough period here and get to the other side.”
Wood was a FERC staffer when the commission was opening up the interstate natural gas markets in the 1980s. The markets worked well and opened new supply, so that by the 1990s, industry and regulators moved onto tackling electricity, recalled Wood, who is now CEO of Hunt Energy Network.
“FERC, at the same time, as we did in Texas in the mid-’90s, decided, ‘Let’s do the same magic trick on the power markets, because God knows, they could use it,’” Wood said.
Wood was the chair of the Texas Public Utility Commission under Gov. George W. Bush and was appointed chair of FERC after Bush was elected president. Texas had a law that required its industry to move at the same pace as the federal government, so Wood and other policymakers followed the Clinton administration’s work around Order 888 and the basic requirements for ISO/RTOs. That process gave Texas an example of what not to do in the form of California.
“We figured out what they did wrong, and we did it good,” Wood said. “So, we’ve been able to go to a deep, retail, deregulated market in Texas.”
Wood moved over to FERC in time to clean up the fallout from the Western Energy Crisis and to help set up the organized markets operating in interstate commerce.
“That was my job, my four years at FERC, to get all these markets set up into being RTOs and ISOs,” Wood said. “So, we pulled California back out of the ditch. You may argue it’s still there, but I think they’ve actually come a long way.”
Part of the lesson from California was that the markets needed to be monitored. FERC required RTOs to have market monitors and won new enforcement authority from Congress a few years after the crisis.
“We really just assumed that we could wave a magic wand and things would be competitive,” Wood said. “Folks, this industry was vertically integrated, regulated to the toenails for 100 years. So, you can’t just wave the wand overnight and say, ‘Oh, you’re competitive.’ We got to kind of undo the damage that’s done by the regulated enterprise. And so that took some time, and it still is, I guess, a project that’s not complete.”
Market power mitigation is important to that project, but as the markets mature with regional planning and resource adequacy constructs, that mitigation can be wound down, he added.
One of Wood’s biggest regrets was the failure of standard market design because that would have made it easier for competitors to get into the business all around the country. As the markets evolved, that happened naturally, but Wood said it was more like “Spanish and Portuguese” than dialects of the same language.
Now the growth of new technologies including intermittent renewables and storage, which Hunt helps develop, are leading to new realities on the grid.
“I do think that as grids move to more and more renewables, which is surprising to some, Texas is probably going to go ahead of California, and pretty much anywhere else in North America, and catching up with some of our people in the world,” Wood said. “We’re moving to a much more renewable-heavy grid, and so that world needs a different set of assets than we have had historically for those last 100 years.”
Hunt has rolled out storage around the Texas grid and has also started investing in small, dispatchable peaking generators that only run an average of 100 to 200 hours a year, as those growing intermittent resources need to be balanced, he added.
