Advertisement

Journal of Regulatory Economics

, Volume 53, Issue 2, pp 127–151 | Cite as

Can capacity markets be designed by democracy?

  • Kyungjin Yoo
  • Seth Blumsack
Original Article
First Online:

Abstract

In the United States, Regional Transmission Organizations (RTOs) operate the power grid serving nearly 70% of electricity customers and are critical organizations for ensuring reliable system operations and facilitating the integration of new technologies and market participants. RTOs are designed to be stakeholder-driven organizations, with rules and policies crafted through a highly participatory process. While the decisions that RTOs make have implications for industry, society and the environment, their decision processes have not been modeled in any systematic way. In this paper, we develop a modeling framework for the stakeholder process of PJM, an RTO serving thirteen states plus the District of Columbia, adapting some of the seminal literature from political science and political economy on the theory of voting systems. This modeling framework can generate predictions of stakeholder process outcomes, identify strong coalitions among stakeholders and identify shifts in political power in the formulation of RTO market rules. We illustrate this analysis framework using a detailed data set from stakeholder deliberations of capacity market reform in PJM. Our model predicts that the current structure of the stakeholder process in PJM makes the passage of capacity market reforms through the stakeholder process virtually impossible because it creates strong coalitions that would favor or oppose changes to capacity market rules. In the capacity market case, we also identify a small subset of voters that act as swing voters and confirm that political power is shifted to these voters by deviations from otherwise strong coalitions and abstentions from the voting process altogether. Our framework represents the first attempt to model the decision-making behavior of RTOs in any systematic way, and points towards emerging research needs in evaluating the governance structure of RTOs.

Keywords

Regional transmission organization Decision-making Voting behavior Capacity markets 

JEL Classification

Q40 Q48 P160 P110 L980 
This is a preview of subscription content, log in to check access.

Notes

Funding

Funding was provided by the U.S. National Science Foundation under Award Number SBE-1261867.

References

  1. Arrow, K. J. (1950). A difficulty in the concept of social welfare. The Journal of Political Economy, 58(4), 328–346. http://links.jstor.org/sici?sici=0022-3808%28195008%2958%3A4%3C328%3AADITCO%3E2.0.CO%3B2-R. Accessed 16 January 2017.
  2. Banzhaf, J. F. I. (1964). Weighted voting doesn’t work: A mathematical analysis. Rutgers Law Review, 19. http://heinonline.org/HOL/Page?handle=hein.journals/rutlr19&id=323&div=&collection=. Accessed 22 January 2017.
  3. Black, D. (1986). The theory of committees and elections. Netherlands: Springer.CrossRefGoogle Scholar
  4. Blumsack, S., Perekhodtsev, D., & Lave, L. B. (2002). Market power in deregulated wholesale electricity markets: Issues in measurement and the cost of mitigation. The Electricity Journal, 15(9), 11–24.  https://doi.org/10.1016/S1040-6190(02)00386-X.CrossRefGoogle Scholar
  5. Blumsack, S., Yoo, K., & Johnson, N. (2017). Can capacity markets be designed by democracy? In Hawaii International Conference on System Sciences (HICSS).Google Scholar
  6. Brandts, J., Reynolds, S. S., & Schram, A. (2014). Pivotal suppliers and market power in experimental supply function competition. The Economic Journal, 124(579), 887–916.  https://doi.org/10.1111/ecoj.12058.CrossRefGoogle Scholar
  7. Carreras, B. A., Newman, D. E., Dobson, I., & Zeidenberg, M. (2009). A simple model for the reliability of an infrastructure system controlled by agents. In Proceedings of the 42nd Annual Hawaii International Conference on System Sciences, HICSS.  https://doi.org/10.1109/hicss.2009.37.
  8. Coleman, J. S. (1971). Control of collectivities and the power of a collectivity to act. In B. Lieberman (Ed.), Social Choice. New York: Routledge.Google Scholar
  9. Deegan, J., & Packel, E. W. (1978). A new index of power for simplen-person games. International Journal of Game Theory, 7(2), 113–123.  https://doi.org/10.1007/BF01753239.CrossRefGoogle Scholar
  10. Downs, A. (1957). An economic theory of political action in a democracy. The Journal of Political Economy, 65(2), 135–150.  https://doi.org/10.1017/CBO9781107415324.004.CrossRefGoogle Scholar
  11. Dworkin, M. H., & Goldwasser, A. (2007). Ensuring consideration of the public interest in the governance and accountability of regional transmission organizations. Energy Law Journal, 28, 543–601. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=27887555&login.asp&site=ehost-live&scope=site.
  12. Fischlein, M., Feldpausch-Parker, A. M., Peterson, T. R., Stephens, J. C., & Wilson, E. J. (2014). Which way does the wind blow? Analysing the state context for renewable energy deployment in the United States. Environmental Policy and Governance, 24(3), 169–187.  https://doi.org/10.1002/eet.1636.CrossRefGoogle Scholar
  13. Garrett, G., & Tsebelis, G. (2001). Even more reasons to resist the temptation of power indices in the EU. Journal of Theoretical Politics, 13(1), 99–105.Google Scholar
  14. Holler, M. J. (1982). Forming coalitions and measuring voting power. Political Studies, 30(2), 262–271.  https://doi.org/10.1111/j.1467-9248.1982.tb00537.x.CrossRefGoogle Scholar
  15. Johnson, N., Yoo, K., Stafford, B., & Blumsack, S. (2015). Of social structures and infrastructure: Voting networks in regional transmission organizations. In Energy policy research conference. Denver CO.Google Scholar
  16. Johnston, R. J. (1977). National sovereignty and national power in European institutions. Environment and Planning A, 9(5), 569–577.  https://doi.org/10.1068/a090569.CrossRefGoogle Scholar
  17. Joskow, P. L. (1997). Restructuring, competition and regulatory reform in the U.S. electricity sector. Journal of Economic Perspectives, 11(3), 119–138.  https://doi.org/10.1257/jep.11.3.119.CrossRefGoogle Scholar
  18. Kiesling, L. L. (2008). Deregulation, innovation and market liberalization: Electricity regulation in a continually evolving environment. Abingdon: Routledge.Google Scholar
  19. Lenhart, S., Nelson-Marsh, N., Wilson, E. J., & Solan, D. (2016). Electricity governance and the western energy imbalance market in the United States: The necessity of interorganizational collaboration. Energy Research & Social Science, 19, 94–107.  https://doi.org/10.1016/J.ERSS.2016.05.015.CrossRefGoogle Scholar
  20. Mayes, J., Haas, H., & Bowring, J. (2012). Effective monitoring and mitigation in the organized wholesale electric power markets. Journal of Regulatory Economics.  https://doi.org/10.1007/s11149-011-9173-0.Google Scholar
  21. Napel, S., & Widgren, M. (2004). Power measurement as sensitivity analysis. Journal of Theoretical Politics, 16(4), 517–538.  https://doi.org/10.1177/0951629804046152.CrossRefGoogle Scholar
  22. O’Neill, R. P., Baldick, R., Helman, U., Rothkopf, M. H., & Stewart, W., Jr. (2005). Dispatchable transmission in RTO markets. IEEE Transactions on Power Systems, 20(1), 171–179.  https://doi.org/10.1109/TPWRS.2004.841168.CrossRefGoogle Scholar
  23. Paine, N., Homans, F. R., Pollak, M., Bielicki, J. M., & Wilson, E. J. (2014). Why market rules matter: Optimizing pumped hydroelectric storage when compensation rules differ. Energy Economics, 46, 10–19.  https://doi.org/10.1016/j.eneco.2014.08.017.CrossRefGoogle Scholar
  24. Pfeifenberger, J. P., Newell, S. A., Spees, K., Murray, A., & Karkatsouli, I. (2014). Third triennial review of PJM’s variable resource requirement curve. http://www.brattle.com/system/news/pdfs/000/000/658/original/Third_Triennial_Review_of_PJM’s_Variable_Resource_Requirement_Curve.pdf. Accessed 16 January 2017.
  25. PJM. (2011). 2014–2015 RPM base residual auction planning parameters with FRR adjustments. www.pjm.com/-/media/markets-ops/rpm/rpmauction-info/rpm-bra-planning-parameters-2014-2015.ashx?la=en. Accessed 20 March 2018.
  26. PJM. (2015a). Federal power act sections 205 and 206. http://www.pjm.com/~/media/about-pjm/newsroom/fact-sheets/federal-power-act-sections-205-and-206.ashx. Accessed 16 January 2017.
  27. PJM. (2015b). PJM operator manual 34. http://www.pjm.com/-/media/documents/manuals/m34.ashx. Accessed 20 March 2018.
  28. PJM. (2015c). Rosters of the members committee. http://www.pjm.com/committees-and-groups/committees/mc.aspx. Accessed 16 January 2017.
  29. PJM. (2016). Committees & Groups FAQs. https://learn.pjm.com/pjm-structure/member-org/committees-groups-faqs/sector-weighted-voting.aspx. Accessed 16 January 2017.
  30. Plott, C. R. (1967a). A method for finding “acceptable proposals” in group decision processes. Public Choice, 2(1), 45–59.  https://doi.org/10.1007/BF01718651.CrossRefGoogle Scholar
  31. Plott, C. R. (1967b). American economic association a notion of equilibrium and its possibility under majority rule. Source: The American Economic Review, (21), 787–806. http://www.jstor.org/stable/1815369. Accessed 16 January 2017.
  32. Roe, E., & Schulman, P. R. (2008). High reliability management: Operating on the edge (Vol. 19). Stanford, CA: Stanford University Press.Google Scholar
  33. Rubinstein, A. (1980). Stability of decision systems under majority rule. Journal of Economic Theory, 23(2), 150–159. http://login.ezproxy.library.ualberta.ca/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5133467&loginpage=Login.asp&site=ehost-live&scope=site. Accessed 16 January 2017.
  34. Schulman, P., & Roe, E. (2016). Reliability and risk: The challenge of managing interconnected infrastructures. Stanford, CA: Stanford University Press.Google Scholar
  35. Shapley, L., & Shubik, M. (1954). A method for evaluating the distribution of power in a committee system. American Political Science Review. http://journals.cambridge.org/article_S0003055400000095. Accessed 22 January 2017.
  36. Simeone, C. (2017). Can reforms improve outcomes? http://kleinmanenergy.upenn.edu/sites/default/files/PJMGovernanceReforms.pdf. Accessed 1 February 2018.
  37. Stafford, B. A., & Wilson, E. J. (2016). Winds of change in energy systems: Policy implementation, technology deployment, and regional transmission organizations. Energy Research & Social Science, 21, 222–236.  https://doi.org/10.1016/J.ERSS.2016.08.001.CrossRefGoogle Scholar
  38. Steunenberg, B., Schmidtchen, D., & Koboldt, C. (1999). Strategic power in the European Union evaluating the distribution of power in policy games. Journal of Theoretical Politics, 11(3), 339–366.Google Scholar
  39. Tsebelis, G., & Garrett, G. (1996). Agenda setting power, power indices, and decision making in the European Union. International Review of Law and Economics, 16(3), 345–361.Google Scholar
  40. Tsebelis, G., & Garrett, G. (1997). Why power indices cannot explain decision-making in the European union. In D. Schmidtchen & R. Cooter (Eds.), Constitutional law and economics of the European Union (pp. 11–31). Cheltenham: Elgar.Google Scholar
  41. Wilson, E. J., & Stephens, J. C. (2009). Wind deployment in the United States: States, resources, policy, and discourse. Environmental Science and Technology.  https://doi.org/10.1021/es900802s.Google Scholar
  42. Yoo, K. (2016). Voting behavior in the PJM regional transmission organization. In 34th USAEE/IAEE North American Conference. Tulsa, OK. http://www.usaee.org/bestpapers.aspx. Accessed 17 January 2017.

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Energy and Mineral EngineeringPennsylvania State UniversityUniversity ParkUSA
  2. 2.Santa Fe InstituteSanta FeUSA

Personalised recommendations

Cite article

Buy options