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State Actions in Organized Markets

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14 see who President Trump appoints to FERC and the direction it takes under Chairwoman LaFleur. Second, moving to the reactive side, one thing is certain. FERC now has challenges to both the New York and Illinois ‘around market’ solutions pending before it. This represents a monumental inflection point as to whether the structures implemented through the CES and FEJB, respectively, are permissible or not. If the ‘around market’ solutions and ZEC system survives, it sends a signal to states that the ZEC pricing structure and general system are palatable to FERC, which may result in increased interest in adopting this template in other states experiencing the baseload power exit phenomenon. Alternatively, if the ZEC system is struck down by FERC (or the federal court in New York), it sends New York and Illinois, as well as states interested in these two states’ ‘around market’ template, back to the drawing board. At that point, it is unclear what the next picture looks like. It could be yet another ‘around market’ embodiment, or it could be a move towards re-regulation. This much is clear: the make-up of FERC is unknown at this time, but the commission has a major ‘around market’ decision to make. And at a more fundamental level, the newly formed FERC needs to decide whether the baseload power exit trend, which is confined to neither a single region of the country nor a particular organized electricity market, requires proactive action to address or alleviate these issues. Of course, an alternative path for FERC would be to allow these state ‘around market’ experiments to be tried in the name of federalism and the lack of a clear, politically tenable solution at the federal level. To be sure, given the premise http://www.washingtonexaminer.com/coal-to-therescue/article/2613181 (“Last year, the large La Paloma gas plant in California announced it was being forced out of business because of market forces created by the Golden State's climate change and renewable energy mandates. Philip Moeller, a former FERC commissioner, says that will be a problem FERC addresses in 2017, and that there is talk about tweaking market rules so baseload plants such as La Paloma are no longer undervalued.”) of regional markets, this creates some real problems, with strong incentives developing for states to outrace one another with subsidies. And, of course, it makes one wonder whether the resulting market equilibrium is worth the candle. V. Conclusion The coming months are crucial in the market design and baseload power exit debate for several reasons. First, the viability of the ZEC system to preserve nuclear power plants in organized electricity markets will be debated and decided at FERC and in the courts, thus determining whether other states may employ the template to accomplish the same ends through either administrative or legislative action. Second, the re-regulation debate in Ohio will continue to evolve with possible legislation to reintegrate the Ohio market. This is a potential tipping point because when it comes to reregulation, it is all about who goes first. If one state is willing to take on this issue and pass legislation to reintegrate, other states will undoubtedly take notice and consider whether they too should consider the ultimate ‘around market’ solution to preserve baseload power for customers. Third, and perhaps most importantly, gasfired power plants will continue to contend with the same market design issues that coal and nuclear plants have dealt with for some time. If the bankruptcies and cold lay-ups seen in the Cal- ISO and the sell-offs of gas-fired units seen in PJM surface in other states and organized electricity markets, then state legislators and regulators will be forced to confront the question of whether gas needs an ‘around market’ solution. At the same time, these officials must evaluate whether the effects on gas compel a departure from deregulation and a return to a vertically integrated structure to keep these units online and preserve grid reliability. The DPS, meanwhile, might emerge as an advertised ‘middle way’ between reintegration and markets. While being, at core, a central resource 4818-3925-2544.3

15 planning model, the DPS has the reliabilitymaintaining and price-hedging characteristics that state regulators and political actors seek. Finally, the most uncertainty surrounds the question of whether a newly constituted FERC will confront these issues directly by looking at market design issues underlying the baseload power exit trend, or if FERC will continue to address it indirectly through consideration of challenges to ‘around market’ solutions designed to patch these problems. There is perhaps only one certainty in this debate, and that is as gas joins coal and nuclear in struggling to remain economic in the organized electric markets, states will continue to develop ever more novel ‘around market’ solutions. And as states consider re-regulation, the problems with retaining baseload power in the markets is neither ending nor plateauing; rather, it is only just beginning. *** 4818-3925-2544.3

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