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FERC RTO Performance Metrics Report Shows No Price Drops for Consumers

On April 7, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission) submitted a report on Performance Metrics for Independent System Operators (“ISOs”) and Regional Transmission Organizations (“RTOs”) (the “Report”).  The Report is in response to recommendations by the Government Accountability Office that FERC come up with standardized measures or metrics to track performance of RTO and ISO markets.  In connection with the 18-month process to develop the metrics and track performance, each of the RTOs and ISOs submitted individual performance metrics reports, attached as Appendices to the Commission’s Report.  Notably, the report showed that customers in RTO regions did not experience price drops despite the plunging price of natural gas and a national recession, leaving some commentators to wonder if the country would not have been better off without RTOs during a time when prices could reasonably be expected to drop.   

In the Report, FERC Commission Staff provided an analysis of the individual performance metrics submitted by the ISOs and RTOs.  Commission Staff emphasized that certain metrics cannot be directly compared between RTOs and ISOs, as there are important differences between each ISO and RTO.  Mindful of these differences, the ISO/RTO metrics were intended to measure performance of three “dimensions”: (1) market benefits; (2) organizational effectiveness; and (3) reliability.  In the Report, Commission Staff provided an analysis of each of these dimensions.

ISO and RTO markets are able to provide benefits to consumers and to energy producers if their markets are competitive and their programs for market efficiency are successful and lower customer cost.  The ISOs and RTOs compare marginal price to marginal cost, and the closer the marginal price is to the marginal cost, the more competitive the market.  The Report indicated that this metrics supports the proposition that all ISOs and RTOs have competitive markets, while noting that there were some differences in data reported as a result of historical differences in the particular reporting period.  Notably, the California Independent System Operator, Inc. (“CAISO”) did not have a forward energy market until 2009, and as such, only 2009 data for CAISO can be accurately measured. The performance metrics also looked at low market concentration indices, generator availability, demand response availability and congestion management metrics to determine market competitiveness.  Despite the competitiveness shown by the metrics, most of the markets did not provide customers with reductions in fuel-adjusted locational marginal prices (“LMP”) from 2005-2009.

Organizational Efficiency metrics measure ISO/RTO performance with respect to accomplishing goals in a cost-effective manner while providing value to market participants. Commission Staff noted that the administrative cost metric is particularly important, and that the CAISO and PJM Interconnection LLC (“PJM”) reduced administrative costs per MWh of load, and New York Independent System Operator (“NYISO”) costs per unit of load remained steady.  Midwest Independent System Operator Inc. (“MISO”), Southwest Power Pool, Inc. (“SPP”) and ISO-New England’s (“ISO-NE”) cost per unit of load increased.

Finally, reliability performance metrics looked at day-to-day operations and long-term reliability of RTOs and ISOs. In their analysis, Commission Staff chose to highlight load-generation balancing, and results indicated there is a “strong level of compliance” in load-generation balancing.  Commission Staff also indicated that ISOs and RTOs helped to ensure long-term reliability through long-term transmission planning programs.

Overall, Chairman Wellinghoff indicated that the individual RTO/ISO reports are the first step in a “multi-year evaluation of performance for utilities under the jurisdiction of the FERC” and that further evaluation will take place in the subsequent fiscal years.  Further, the individual reports indicated challenges that FERC will address in evaluating its next report, such as: (1) the need for new transmission capacity for reliability and to reduce congestion; (2) the need for improved wind and solar forecasts; (3) the need to address control, communication and reliability challenges in connection with demand response resources integration into energy and ancillary services markets; and (4) the need for more accurate transmission project cost estimates.

A copy of the Report is available at www.ferc.gov and here.

A copy of each individual RTO/ISO report is available at the following hyperlinks:

CAISO
ISO-NE
MISO
NYISO
PJM
SPP