An Expensive Experiment? RTO Dollars and Sense

Deck: 

Financial data raises doubts about whether deregulation benefits outweigh costs.

Fortnightly Magazine - December 2004
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This year, U.S. electricity consumers will spend more than $1 billion financing the operation of six regional transmission organizations (RTOs).1 RTO costs have nearly doubled since 2001 and now outweigh nearly all of the benefits anticipated by the national cost-benefit studies.

Operating costs consist of salaries, employee benefits, leases, facility costs, legal and consulting services, amortization and depreciation on capital costs, insurance, travel expenses, and the like. Since 2000, the total annual U.S. RTO operating expenses increased by 143 percent-growing at an annualized rate of 20 percent per year (see Figure 1). Individually, the existing RTOs exhibit a similar trend. Costs at the Pennsylvania-New Jersey-Maryland Interconnection (PJM), the first to introduce a bid-based wholesale energy market, have grown from $21.4 million in 1997 to $215 million in 2004.2 With the most pronounced growth, spending by the Midwest Independent System Operator (MISO) jumped from $20.7 million in 2000 to a budgeted $210 million in 2004 (914 percent in 4 years).3 Others, like ISO New England (ISO-NE), orchestrated a slower expansion, increasing costs from $57.5 million in 1998 to a budgeted $122 million in 2004.4 Figure 2 displays the operating costs for each RTO/ISO including amortization, depreciation and interest (in 2003 dollars).

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