By

ICF study shows the national benefits of RTOs are too large to be ignored.

Sixty billion dollars in benefits. Less than $6 billion in costs. In any business, those numbers mean just one thing: you've got a winner.

For the electric industry, these numbers demonstrate what many of us have been saying all along-regional transmission organizations (RTOs) are a winner.

Indeed, the numbers are so one-sided you might be tempted to think the study that produced them was jury-rigged by an interested party. Were the Electric Power Supply Association (EPSA) to commission such a study, for example, results of this magnitude likely would be dismissed out of hand by many as little more than thinly veiled advocacy. However, this study was commissioned by the Federal Energy Regulatory Commission (FERC) last fall, and conducted by an independent firm of high repute, ICF Consulting.

There are caveats and cautions sprinkled throughout the 91-page study, the first attempt to quantify the nationwide costs and benefits of FERC's current transmission policy initiatives. But the conclusions are straightforward. "Substantial net benefits should result from the commission's policy," ICF says in the study's executive summary. "Once policy changes are fully in place, the results suggest that $1 billion to $10 billion per year in economic gains could result." Equally important, ICF concludes that there is "relatively little downside risk to the commission's policy." In other words, we can argue about the magnitude of the savings if we want, but we cannot argue about the merits of FERC's RTO policy.

The ICF study takes a careful, step-by-step look at a host of policy changes now pending at FERC, or likely to arise in the near future, and finds benefits to all of them for virtually everyone. More importantly, what the study really shows, although never explicitly acknowledged by the authors, is that comprehensive reform offers the greatest potential benefits-a point the competitive power supply industry has been arguing for years.

To start with, the study looked at what ICF calls a "transmission-only case," which combines several discrete benefits expected from the formation of RTOs into one scenario. The improvements included in this scenario are: the reduction of barriers to transmission traffic between regions, the expansion of transmission capability, an increase in inter-regional capacity sharing, and slightly lower reserve margins requirements.

Taken together, ICF says, these improvements will cut costs nationwide by an estimated $405 million annually beginning in 2004, rising to almost $1.3 billion annually in 2020. ICF calculates the net present value of the total savings expected from 2002-2020 at some $6.2 billion.

"The benefits in this case," ICF added, "are significant even though [the] assumptions are conservative."

ICF's second scenario, what it calls the RTO policy case, incorporates all of these transmission-specific changes plus an anticipated improvement in the overall cost-effectiveness of the generator segment following the introduction of RTOs nationwide. This seemingly small addition, which assumes a more efficient allocation of new and existing generating resources-as well as a resulting increase in competitive pressures among all generators-results in a significant increase in the expected savings.