FERC Filings
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION re: ELECTRICITY MARKET DESIGN AND STRUCTURE
BODY
The Study’s conclusions, premised on the establishment of consistent and
effective market rules, suggest that “substantial net benefits should result from the Commission’s policy.” Specifically, the Study concludes that once RTO policy changes are in place, $5 billion to $8 billion per year in economic gains would result. Further, the Study determined that net benefits “will depend on the effective and timely implementation of competitive electric power markets, and on minimizing delays and excessive startup costs.” Rather than focus on the size of RTOs, the Study emphasized the importance of a standard market design across RTOs and enhanced incentives to promote the most efficient market outcomes.
Importantly, the Study provides strong support for the Commission’s efforts to address residual discrimination in the access to and use of transmission, as well as economic and operational inefficiencies in the transmission system. In Order No. 888, the Commission estimated that the potential quantitative benefits of open access to the transmission grid would be approximately $3.8 to $5.4 billion per year of cost savings, in addition to the non-quantifiable benefits that include better use of existing assets and institutions, new market mechanisms, technical innovation and less rate distortion. While this estimate refers specifically to the benefits derived from opening transmission to non-utilities, it reinforces the validity of FERC policies directed at the full spectrum of transmission-related obstacles to robust competitive wholesale electric markets.
The Study’s discussion of the broader context and basis for regulatory policy makes it abundantly clear that RTOs are critical to both electric system reliability and well-functioning competitive wholesale markets. Indeed, the Commission articulated a compelling rationale for its RTO policy in Order No. 2000, noting that while Orders No. 888 and 889 laid the foundation for competitive markets, establishing RTOs is essential to realize the full potential of wholesale competition. The Study reaffirms this rationale by quantifying the economic benefits that RTOs could produce.
In Order No. 2000, the Commission surveyed the benefits of competition from the development of RTOs, identifying several critical goals, including: greater efficiency in grid management; improved grid reliability; the elimination of discriminatory transmission practices; improved market performance; and, reducing the use of Commission resources to monitor utility transmission and generation unbundling. Now, the ICF study provides a credible basis for expecting quantifiable benefits that correspond to the non-quantifiable goals RTOs are expected to achieve.
RTOs are good for consumers—their timely implementation would mean $40 billion to $60 billion in real savings for consumers. The Study’s findings are supported by the Clinton Administration’s Comprehensive Electricity Competition Plan, which made similar findings regarding annual savings from competition. However, it is important to recognize that this figure does not capture or express the full extent of benefits that consumers and industry can expect from RTOs. The Study relies on conservative assumptions to make its estimates for savings and maintains that in order to realize the potential economic benefits from a policy that aggressively promotes competition, further analysis would be necessary. In addition, the Study does not take into consideration secondary economic impacts (spillovers) or employment gains, which are added benefits for consumers as well.
The Study clearly confirms that FERC policy is sound and well-directed toward solving critical problems affecting the transmission system. Furthermore, the integrity of the process used in producing the Study, including the retention of a reputable consulting firm and active state participation, reinforces the credibility of its final conclusions. ICF took painstaking care to make certain that the development of the Study not only took into account the various methodologies used in previous studies of RTO policy, but also included a collaborative process for framing its own. In fact, Commissioner David A. Svanda of the Michigan Public Service Commission and Chairman Alan A. Schriber of the Public Utilities Commission of Ohio, both of whom served as state commission advisors to FERC for the study, applauded the Study in a statement praising the collaborative process and FERC’s working relationship with Midwestern states. The result of such a careful process was formation of a conservative set of assumptions upon which to base the Study.