Interviews June 30, 2014

Energy Partner Ken Jaffe Discusses Trends in Electricity Markets

We recently sat down with Ken Jaffe, partner and leader of the firm’s Energy Group, and discussed new economic and regulatory trends that are creating significant challenges, and opportunities, for electricity suppliers, market operators and delivery companies in the electricity markets.

What trends are affecting electricity markets?

A number of economic and regulatory trends are creating significant challenges, as well as opportunities, for electricity suppliers, market operators and delivery companies. These trends include declines in the cost of small solar generation, increases in conservation, technological advances in batteries and other storage technologies, increased natural gas supplies, and environmental restrictions making it increasingly difficult and expensive to burn coal to generate electricity.

What challenges do these trends create?

The proliferation of distributed solar and other generation is giving customers new alternatives to complete reliance on the grid, creating opportunities for those who can help them to take advantage. For generation owners and developers, there is concern that prices in regional markets are too low to support investment or even to keep existing facilities in service. Additional renewable development will create needs for new transmission infrastructure. And the regional system operators must deal with an increasingly complicated task to run markets and maintain reliability.

Have regulatory policies contributed to these challenges?

Yes. Regulators are pursuing multiple initiatives to address these trends, which present both challenges and opportunities. In some states, including New York and Hawaii, regulators are reconsidering the traditional regulatory structure in which utilities have operated for decades. In others, states are looking at awarding long-term contracts, as well as more novel structures, to promote infrastructure development. Meanwhile, the Federal Energy Regulatory Commission has issued new rules to promote participation by renewable generation and energy efficiency providers in wholesale markets and to change the way the transmission grid is planned and built. These regulatory initiatives are challenged in court, where questions have been raised about the jurisdiction of state and federal agencies to pursue them.

What has been the biggest change in your practice in the past five years?

We are concurrently addressing the expansion and enhancement of regional electricity markets, alternatives to those markets, and matters involving the consequences of investments made in the past, including allocating the costs of regional transmission upgrades and addressing projects that were abandoned in the last economic downturn.

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Nicholas Clarke
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