Two Cato analysts suggest a return to the past-vertical integration, but now with no state regulators.
The defeat of the energy bill in...
To bracket its RTO policy case, which assumed there would be five transmission entities, ICF looked at a scenario where there were just three (the western and eastern interconnections and Texas), and one where there were 10. What ICF found is that "the scope and configuration of RTOs does make a difference in the potential economic benefits of RTO policy. Larger RTOs could reduce more barriers to inter-regional trade, leading to greater efficiency gains."
That said, the differences are not significant, and EPSA is much more concerned about getting RTOs in place than the exact number that ultimately are established. In this, we wholeheartedly agree with ICF's take on the RTO numbers issue: "In the analysis carried out here, it is more important to have well-functioning competitive markets than it is to have one specific RTO configuration, although fewer and larger RTOs do lead to the greatest potential benefits."
Equally important, the benefits of a switch to RTOs will begin showing up almost immediately because the expected start-up costs associated with these transmission entities are relatively low. According to ICF, they could be as low as $1 billion, and almost certainly would not be more than $6 billion.
"For the purposes of this study," ICF wrote, "the major observation is that even if start-up costs are at the high end of the range, they are essentially one-time costs that are netted out against the ongoing economic benefits of RTOs. Even a $5 billion initial cost would be rewarded after several years with economic gains that appear to justify the initial expense."
Taken together, the pieces of ICF's study present a convincing whole: RTOs are a crucial component, perhaps the crucial component, of a truly competitive electric power industry. It is time for the industry to stop arguing about whether RTOs make sense and begin working together to get them up and running.
We are not just losing time, we are losing money. Let's get moving.
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