The Regional Greenhouse Gas Initiative (RGGI) folks have posted the comments filed in response to the final auction design report. Previously here I commented on one such filing, an analysis by economist Peter Cramton submitted by the ISO-New England and NYISO, that pointed out a potential flaw in the auction design.
Briefly scanning through a number of the twenty-four comments posted reveals a couple of themes that get repeated. Most of the commenters tend to support the overall RGGI auction design proposal, and characterize their comments as focusing on a few narrow issues.
Among the many parties representing electric power generators and consumers, several parties objected to the use of a reserve price in the auction, some objected to allowing non-power generators participate in the auction, preferring the “closed” alternative, and several worried that there could be an inadequate number of permits available. Generator interests were also concerned about the high percentage of permits to be auctioned from the beginning of the program rather than directly allocated to the parties that will require them.
The environmental and energy public policy groups filing comments tended to support use of a reserve price, favored allowing non-generators to participate in the auction, urged a strong market monitoring program, and worried that their may be an oversupply of permits in the early years of the program. Several commenters urged that plans be made for a smooth transition to any future nation-wide carbon cap-and-trade program.
Reliability: At least one party raised electric reliability concerns, and suggested that the program guarantee that sufficient permits will be sold into each state to ensure reliable operation of the state’s power grid. In principle the auction could be designed to respect such limits, but doing so seems to immediately break down the benefits of a regional approach: first, auction prices for permits in a state may have to diverge from prices outside; second, fragmenting the market through state-by-state reliability minimums can create localized market power problems; third, such a minimum would have to be enforced through out operations of the secondary markets – not impossible, but it adds more monitoring and costs. More problems are imaginable. The better approach is to build a good market design that allows properly-managed generators to obtain enough permits without a lot of excess risk, and then set non-compliance penalties at a level sufficient to penalize non-compliant generators without preventing them from providing power when needed for reliability.
Market design issues: Most of the parties filing comments were not as fascinated as I was by the technical market design issues raised by the report, but if you want more market design commentary see the remarks filed by Lawrence Ausubel (chairman of Power Auctions LLC and a colleague and frequent collaborator with Cramton in the University of Maryland economics department). In case you are wondering, Ausubel, too, objected to the proposed offering of two permit vintages in separate, simultaneous sealed-bid auctions and urged rather that the two permit vintages be offered together, using an ascending clock auction design.
Most of the comments are short and fairly non-technical, making a review of them a good way to get exposed to a variety of opinions on program design issues.