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Studying Apples and Oranges

RTO cost/benefit studies are difficult to reconcile.
Fortnightly Magazine - September 15 2002

to society. However, one should not expect the "losers" to support the structural change without assurances of appropriate transition arrangements. Once the industry becomes comfortable with the likelihood of net benefits from RTO formation, assuming they can be credibly demonstrated, the debate needs to evolve from identifying winners and losers. Instead,in order to move RTO development forward, the focus needs to be on developing the mechanisms to equitably distribute net benefits, at least over some transitional period.

An expanded version of this article is available on PA Consulting's Web site, www.paconsulting.com/energy.

  1. While the five studies described all quantify the benefits of RTO formation, only one looks at the potential costs. However, for the purpose of this article we will refer collectively to these analyses as cost/benefit studies. Additional studies are expected for PJM-MISO-SPP, Entergy (Louisiana and Arkansas) and by the Southeastern Association of Regulatory Utility Commissioners (SEARUC).
  2. Affidavit of E. Harry Vidas and Bruce B. Henning, FERC Docket No. RT01-99-000, October 9, 2001, p.3.
  3. Id. at pp. 6, 9.
  4. "The lack of LMP pricing in NEPOOL makes any estimation of supply curves, or assessment of gains from trade, based on posted NEPOOL prices of doubtful value." Id. at p. 6.
  5. In the transmission-constrained curtailments case, transfer limits were set equal to actual flows in transmission-constrained hours. In the reduced interface limits case, the transfer limit was set at the higher of actual flows or the actual average flows during constrained hours. Steeper sloping supply curve estimates were applied in both the NYISO and PJM markets.
  6. PJM used the GE Multi-Area Production Simulation (GE MAPS) model to simulate hourly locational marginal prices in the three individual northeast markets assuming separate unit commitment and dispatch functions. The RTO West study also used GE MAPS to model the RTO West and WSCC regions.
  7. Tabors Caramanis & Associates, "RTO West Benefit/Cost Study: Final Report Presented to RTO West Filing Utilities," March 11, 2002.
  8. "PJM Moves to Pull Out of Northeast RTO" Generation Week, June 16, 2002.
  9. Comments of the Large Public Power Council on the Economic Assessment of RTO Policy Prepared by ICF Consulting for the Federal Energy Regulatory Commission, Docket No. RM01-12-000, April 9, 2002, pp. 12-15, and Comments of the Public Service Commission of South Carolina, Docket No. RM01-12-000, April 9, 2002 (LPPC Comments), p. 12.
  10. Comments of the Large Public Power Council on the Economic Assessment of RTO Policy Prepared by ICF Consulting for the Federal Energy Regulatory Commission, Docket No. RM01-12-000, April 9, 2002, p. 6.
  11. Supplemental Affidavit of E. Harry Vidas and Bruce B. Henning, FERC Docket No. RT01-99-000, October 26, 2001, p. 9. See also Andrew Hartshorn and Scott Harvey, "Assessing the Short-Run Benefits From a Combined Northeast Market," LECG LLC, October 23, 2001, pp. 6, 42-44.
  12. Linc Wolverton et al., "Corrections to the Benefits/Costs Study for RTO West," April 19, 2002, p.1 in Attachment B of Tabors Caramanis & Associates, "Response to the RTO West Benefit Cost Study Critique Dated April 19, 2002," June 4, 2002.
  13. Comments of the Large Public Power Council on the Economic Assessment of