The R Street Institute (RSI) hereby submits comments on the critical matter of state policies affecting ISO-NE, NYISO and PJM. The Federal Energy Regulatory Commission (the “Commission” or “FERC”) faces a critical challenge in maintaining market integrity. A practical, principled approach will support a framework to uphold competition in the face of mounting anti-competitive interventions and perhaps contribute to a curtailment of interventions.

The contentious rise in state policies marks the expansion of industrial policy, whereby government explicitly picks winners and losers through the direct support of particular resources over others. Such policies are philosophically incompatible with competitive markets. However, despite modest to moderate degrees of political interference, competitive markets will outperform regulated monopolies. In fact, over the past decade, resource investment in restructured states has still outperformed regulated states even as subsidies have consistently skewed markets. However, recent ad hoc subsidies to large-capacity resources create a step-function increase in distortionary effects. These carry with them the risk of profound market damage that may curtail the ability of the regional transmission organization (RTO) and independent system operators (ISO) markets to ensure resource adequacy.

Image by Anastasia Kamyshev