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Perspective

ICF study shows the national benefits of RTOs are too large to be ignored.
Fortnightly Magazine - May 1 2002

ICF estimates that annual savings will top $5 billion by 2010, and top out at almost $7.5 billion in 2020. Overall, the net present value of the savings expected from this policy scenario is just under $41 billion.

The significant difference in savings anticipated from the transmission-only scenario and the broader RTO policy case is almost certain to prompt some to argue that we should not worry about the transmission changes and just focus on improving generator performance. We beg to differ. Such a course would be doomed to fail since, without the transmission improvements, particularly the lowering of inter-regional trade barriers, there will continue to be limited improvement in generator performance.

Finally, ICF looks at what it calls a demand response case, which includes the previously mentioned transmission and generator changes, plus an assumption that consumers will see and be able to respond to real prices. The savings really add up in this case, with ICF projecting annual cost reductions of more than $4 billion by 2006, rising to $7.5 billion in 2010 and topping out at almost $10.4 billion in 2020. All told, the savings would total some $60 billion.

In anybody's book, those are real savings. But what is even more impressive is ICF's caveat following the discussion of those savings.

"The demand response case is not designed as an upper bound ... to the possible savings under a successful RTO policy implementation," ICF said. "All of the assumptions used in the scenario are based on earlier related analysis, or other existing information. ... Hence, [emphasis added] in a more competitive electricity market."

A "more competitive electricity market"-that is exactly our aim.

Another crucial finding in ICF's study is that prices will go down, and go down substantially, virtually across the board. There are a couple of areas where prices are actually expected to go up, but according to ICF, these increases "are generally small (a few percent at most) and diminish over time." The study also does not factor in state regulatory actions that could ameliorate any adverse impacts in pricing.

The firm also noted that it had not studied the so-called secondary benefits of increased inter-regional trading. The only reason prices will go up anywhere, ICF pointed out, is because regions with low-cost power will be better able to export power to neighboring high-cost areas. As such, the low-cost exporting regions "should also experience gains from trade in the form of increased export revenue and supplier earnings."

And while these limited regional impacts should not be dismissed, it also is clear from a national policy perspective that we cannot afford not to pursue the adoption of RTOs across the country. The national benefits simply are too large to be ignored.

EPSA has never taken a position on the specific number of RTOs that should be formed, concentrating instead on the battle simply to get RTOs on to the front burner at FERC. Still, common sense tells us that fewer, larger RTOs would be more beneficial than lots of additional "seams," and the ICF study bears this out.