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RTOs: Facts, Not Fiction

The benefits and future challenges of regional transmission organizations.

Fortnightly Magazine - July 2005

for several years to provide more cost certainty and even more accountability for cost and performance.

On the “To Do” List

Do these significant accomplishments mean that PJM and RTOs have solved all the problems in the wholesale electric market? Absolutely not. More remains to be done, most notably in the areas of enhancements to the grid, better tools to manage congestion risks, and better integration of demand response into the overall market.

• PJM will be working with its members during the next year to develop longer-term FTRs. This will allow for those customers desiring long-term contracts to meet their load obligations and better manage congestion risks, while helping to spur even more bilateral activity.

• PJM intends to review its economic planning process to better allow broad investment in transmission expansion. It may be that the process can be used as the basis for forming “consortiums” that will seek to build out the transmission system to allow for the greater transfer of power over a broad area. Projects such as the recently announced Frontier project to move power from Wyoming to the California market could be facilitated by Eastern RTOs using their wealth of information. The first step may be to get transmission owners to cooperate in procurement going forward for transformers or other important transmission infrastructure items. PJM also will seek to establish thresholds to determine when transmission is robust but not “gold-plated.”

• PJM already is working with its members to provide rules, procedures, and products to allow demand to respond to prices and act as the force it should in a competitive market. To this end, PJM recently has proposed to its members a “forward energy reserve” (FER) that will allow those serving retail load to better manage need in relation to demand.

These ideas represent only an illustration of some of the opportunities for improvement that are before PJM and its members. Other opportunities doubtless will be identified.

Most of what concerned policymakers in the mid to late 1990s has been realized. We have transparent markets. We have transparent operations. We have liquid markets. By any objective analysis, the costs PJM incurred on behalf of members to get to this point have been reasonable and are now becoming more predictable.

However, we understand the efforts to restructure the market should not end there. The electricity industry, arguably the most important part of the digital American economy, faces new challenges. RTOs such as PJM have not solved everything, but an organization that operates a large regional network is a far better platform for tackling the new challenges than any model we have had in the past. The industry, as one customer group noted, is doubtless at a crossroads. But rather than thinking about going backward, let’s go forward and continue to innovate and improve. Let’s not go back to 19th century business structures when we have 21st century needs.