Did You Know

A Standard Wholesale Market Design Could Save Consumers $1 Billion a Year, According to U.S. Department of Energy Study

Impacts of the Federal Energy Regulatory Commission's (FERC) Proposal for Standard Market Design (SMD) found that "…average wholesale prices under SMD are estimated to decrease by about 1 percent in 2005 and by about 2 percent by 2020 relative to the non-SMD case." The average decline of the generation and transmission component of retail prices also would be about 1 percent.

Even with a conservative model, that's about a billion dollars in annual savings. While opponents to competition continue to reject such positive findings, the fact is that the DOE study is at least the sixth recent independent analysis finding that broad-based wholesale competition has and will result in substantial monetary savings for energy consumers.

"The net benefit for all consumers is about $1 billion per year over the first six years (the near term), after factoring in the estimated $760 million per year in RTO costs. Although the annual net consumer benefits decline slowly over time, they are still about $700 million per year for the long term (2016-2020)," the report said. FERC's proposed SMD could have a positive effect on investor confidence and infrastructure development. The report finds:

• Regional transmission expansion plans under RTO oversight could boost confidence in the viability of projects that met important regional needs.


• Regional efforts to establish principles for allocating the costs of new investments could reduce uncertainties that would otherwise undermine investor confidence.


• Locational marginal pricing (LMP) would be likely to give better price signals to investors concerning the location, size, and timing of new facilities.

A national system of regional markets overseen by independent system operators also will enhance system reliability, according to the report:

• Independent regional grid operators have the ability to improve system security through broader system awareness, greater resources and faster response time, along with having a coordinated approach to resolve resource adequacy problems and transmission bottlenecks.
  
• LMP is likely to lead to improvements in generation, transmission and distribution by encouraging improved generator availability and efficiency, which should improve adequacy in the short term. Over the long term, LMP should provide economic signals to generators to locate new plants on the load side of bottlenecks, thereby freeing up transmission resources.
  

For a copy of the report, visit: http://www.energy.gov/HQDocs/DOES0138SMDfinal.pdf or contact EPSA's Douglas Austin at daustin@epsa.org, or (202) 628-8200.