FERC Critics Say Regional Grid Orgs Don?t Save Money

The Federal Energy Regulatory Commission study concluding that regional transmission organizations (RTOs) are cost-effective is being disputed by RTO skeptics. The criticism comes in part because federal regulators omitted the California Independent System Operator and the New England Independent System Operator from a cost-benefit analysis released in early October. Opposition to federal regulators? push to deregulate and create RTOs is growing. Dozens of lawmakers from Western and Southeastern states as well as public utilities are protesting FERC?s push for regional grid organization growth. ?Since 2000, total U.S. RTO operating expenses have increased by 143 percent and are growing at an annualized rate of 20 percent per year, largely due to increases in operation sizes and scope,? according to a Snohomish Public Utility District study released October 15. The analysis, conducted by Henwood Energy Services, assesses the costs of CAISO, PJM, the New York Independent System Operator, the New England ISO, and the Electricity Reliability Council of Texas (ERCOT). It estimates the six entities? operations will cost $1.04 billion this year. FERC?s study evaluated the costs associated with PJM, the Midwest ISO, ERCOT, and the Southwest Power Pool and found that regional transmission bodies reduce costs for consumers by between 0.5 percent and 2 percent ( Circuit , October 8, 2004). ?The track record of existing RTOs approved by FERC is one of increased costs and unaccounted benefits,? counters Snohomish PUD and a dozen other utility districts in Washington in a letter accompanying the Snohomish analysis. That study also questions one of the purported benefits of RTOs: more reliability. It points to the infamous August 14, 2003, East Coast blackout and the March 4, 2004, outage in Southern California Edison territory. The latter affected 70,000 people. Critics also note that federal regulators are not assessing the costs of what are known as Day Two RTOs. The four entities FERC evaluated are morphing into that category. Day Two RTOs incorporate the lesser Day One RTO functions, which include open-access transmission, congestion management, and regional planning; in addition, they include FERC?s proposed standard market design and locational market pricing. ?The Henwood ?study? clearly overestimates the costs and underestimates (or fails to account for at all) benefits,? said Bryan Lee, FERC spokesperson. ?And as to the extent to which anything beyond a Day One RTO is adopted?yes, there are additional costs, but those are offset by greater-magnitude benefits.? Lee also noted that a Bonneville Power Administration analysis of the Henwood study counters many of its conclusions. Earlier this month, FERC chair Pat Wood received a bipartisan anti- RTO letter signed by 77 House of Representatives lawmakers from the West and the Southeast. It includes the entire delegation of Idaho, Montana, and Wyoming and 7 of the 9 from Washington. California is not involved because CAISO filed a tariff earlier this year to become its own regional transmission organization. It is too late for a congressional battle over the issue this year, but presumably the letter is meant to serve as a preemptive strike to see where the market power test may be drawn. FERC has not responded to the letter from House members, said the agency?s Lee. However, he said the Henwood study ?clearly overestimates the costs and underestimates?or fails to account for at all?the benefits? of RTOs. Problems remain with regional grids, in any event, said Lee. Those include rate pancaking, multiple queues for long-term service and generation interconnections, lack of grid capacity, lack of regional transmission planning, and increasing congestion, among other issues.

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FERC Critics Say Regional Grid Orgs Don?t Save Money

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