The Clean Power Plan Endangers Electric Reliability: RTO and ISO Market Perspectives.” In, 2015.Abstract

    Excerpt from the Executive Summary


    The Environmental Protection Agency’s proposed Clean Power Plan (CPP), published in June 2014, raises substantial operational challenges for regional transmission organizations (RTOs). In the CPP, EPA specifies emission reduction targets for 49 of the 50 states, based on EPA’s modeling that purportedly shows that each state can achieve the specified reduction targets through the use of four “building blocks.” States are to develop plans to meet the targets between 2020 and 2030, and are offered “flexibility” to use any combination of the four building blocks specified and/or other means (if approved by EPA) to achieve these targets. The State plans – required by June 30, 2016 (unless an extension is granted) - must specify how each state intends to meet the targets.

    While there are many issues, questions and concerns with the ability of states and utilities to meet EPA’s emission reduction targets based on the use of EPA’s four building blocks (or through other means), building block 2, in particular, raises substantial issues for systems operators and RTO/ISO market operations because it involves changing the current methods of how electricity is dispatched throughout the nation’s bulk power systems.

    Either FERC or the states have always overseen how security constrained economic dispatch is conducted to maintain reliability while cost-effectively serving customers. But, if EPA’s proposed rule becomes final, it, and not the system operators that federal and state regulators have entrusted, will make such critical decisions for our nation’s utility customers regardless of costs.

    FERC, Operator‐Initiated Commitments in RTO and ISO Markets, 2014.Abstract



    This paper is part of an effort to evaluate matters affecting price formation in the energy and ancillary services markets operated by Regional Transmission Operators (RTOs) and Independent System Operators (ISOs) subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC or Commission). It focuses on operator-initiated commitments in the RTOs and ISOs and the challenges in internalizing all relevant physical and operational constraints in the day-ahead and real-time market processes. This paper defines an operator-initiated commitment as a commitment that is not associated with a resource clearing the day-ahead or real-time market on the basis of economics and that is not a self-schedule. Deeming an action to be “operator-initiated” is not intended to confer any judgment that the action is not appropriate or necessary to maintain reliability.


    Tierney, Susan, and Edward Kahn (Analysis Group). “A Cost-Benefit Analysis of the New York Independent System Operator: The Initial Years.” In, 2007.Abstract

    Excerpt from the introduction:

    The New York Independent System Operator (“NYISO”) asked Analysis Group to conduct a study that would measure the costs and benefits associated with various aspects of the restructuring of the wholesale power market in New York. Our economic study focuses on certain key changes in operational performance of the power system during the initial years following the start-up of the NYISO. NYISO began operation at the end of 1999, as part of the larger process to restructure the electric industry in New York State. At the wholesale level, restructuring included both changes in the institutions responsible for grid operation and in the dispatch and market rules implemented by the NYISO, as well as major changes in the ownership of generation assets. These combined changes – especially the new market rules that paid generators market clearing prices – created strong profit incentives for improving operational performance of power plants. We look at the effect of these changes. There were many other changes in the industry as well, not all of which are amenable to quantitative assessment. To assess these larger changes in the economic environment, we examine broad measurable changes in wholesale power market performance, although we do not suggest that we have examined all factors comprehensively. Our spotlight focuses on the effects of changes in power plant dispatch rules and practices, and in incentives for improvement performance of generating units.

    Chandley, John, and William W. Hogan. “A Path To Preventing Undue Discrimination and Preference In Transmission Services.” In, 2006.Abstract

    Excerpt from the Introduction:


    The Federal Energy Regulatory Commission proposals for Order 888 Open Access Transmission Tariff (OATT) reform arise from a continuing frustration with the Commission’s efforts to provide open access to transmission both for its own sake and to support competitive markets. The Commission has found it difficult to meet the basic requirement to avoid undue discrimination and preference in transmission services. This difficulty follows in part from the nature of the electricity grid. But more important, the transmission access procedures promulgated in Order 888 are not consistent with the requirements of reliable and efficient operation of the grid, nor do they support workable competitive markets. A better approach, more closely aligned with actual grid operations and compatible with competitive principles, is obviously needed. Unfortunately, the narrow focus in the Commission’s Notice of Proposed Rulemaking (NOPR) does not allow it to see the problems inherent in the current Order 888 framework that must be addressed to achieve the Commission’s goals.

    After many prior attempts at broader reforms to meet its expansive goals for industry reforms, the Commission seeks now to narrow its scope to advancing limited changes to the OATT. The focus is on improving the consistency and transparency of the determination of available transfer capability (ATC) as the primary means to address undue discrimination. But if inconsistent ATC calculations and methods are not the underlying problem, then the proposed “solutions” will fail.

    The emphasis of the past analyses has been on the defects of the OATT contract path and ATC framework. Although the Commission’s own analyses have recognized these defects, the Commission has not been able to address these matters without entangling itself in a larger debate about electricity market design and electricity restructuring. Given the impasse, it may be that the emphasis on ATC imposes too much on the Commission if it is to find a path to preventing undue discrimination and preference in transmission services. A different approach is needed.

    Joskow, Paul. “Patterns of Transmission Investment.” In, 2005. Publisher's VersionAbstract

    This paper examines a number of issues associated with alternative analytical approaches for evaluating investments in electricity transmission infrastructure and alternative institutional arrangements to govern network operation, maintenance and investment. The economic and physical attributes of different types of transmission investments are identified and discussed. Alternative organizational and regulatory structures and their attributes are presented. The relationships between transmission investments driven by opportunities to reduce congestion and loss costs and transmission investment driven by traditional engineering reliability criteria are discussed. Reliability rules play a much more important role in transmission investment decisions today than do economic investment criteria as depicted in standard economic models of transmission networks. These models fail to capture key aspects of transmission operating and investment behavior that are heavily influenced by uncertainty, contingency criteria and associated engineering reliability rules. I illustrate how the wholesale market and transmission investment frameworks have addressed these issues in England and Wales (E&W) since 1990 and in the PJM Regional Transmission Organization (RTO) in the U.S. since 2000. I argue that economic and reliability-based criteria for transmission investment are fundamentally interdependent. Ignoring these interdependencies will have adverse effects on the efficiency of investment in transmission infrastructure and undermine the success of electricity market liberalization.

    American Public Power Association,Restructuring at the Crossroads.” In, 2004.Abstract

    Excerpt from the Executive Summary:

    It is time to take stock of the Federal Energy Regulatory Commission’s (“FERC”) electric restructuring policies. APPA believes substantial “mid-course corrections” to FERC’s policies are needed to fix existing Regional Transmission Organizations (“RTOs”) and to encourage non- RTO alternatives in those regions where RTOs are not likely to form.

    To protect electric consumers, as the Federal Power Act (“FPA”) requires, FERC should reorient its policies to make sure electric consumers in fact— not just in economic theory—benefit from electric restructuring.

    FERC should:

    •  Ensure appropriate investment in transmission and generation infrastructure;

    •  Recognize and respect regional industry differences and preferences;

    •  Encourage cost-effective and not overly complex regional solutions;

    •  Support rational long-term generation resource arrangements that are in turn supported by long-term transmission service provided at just and reasonable rates;

    •  Foster well-functioning wholesale electric markets; and

    •  Ensure that public utility sellers of power at market-based rates

      charge “just and reasonable” prices.

    Chandley, John, and William W. Hogan. “Independent Transmission Companies in a Regional Transmission Organization.” In, 2002.Abstract

    Excerpt from the Executive Summary:

    As part of electricity restructuring in the United States, there is broad interest in the concept of an independent transmission company (ITC) that would operate as a standalone, for-profit transmission business. The Federal Energy Regulatory Commission has encouraged ITCs by offering to consider incentive rate mechanisms in conjunction with Regional Transmission Organizations that meet the requirements of Order 2000. However, the appropriate role of an ITC within the RTO framework remains unsettled. Some proposals would have the transmission company (Transco) be the RTO and perform all of its functions, even market operations. Hybrid proposals would have the Transco control some of the RTO functions but delegate the activities associated with market operations to a third party. This paper describes a third model, a marketcompatible ITC that would neither be the RTO nor assume the RTO’s public interest functions.

    The for-profit nature of a monopoly Transco and its claimed ability to make efficient tradeoffs across market operations, system control, grid management and investment give the Transco its initial appeal. On closer inspection, however, the implications of these tradeoffs for market participants and concerns about leaving the RTO’s public interest functions distorted by the Transco’s private interests create a need to ensure independence for both system and market operations, so that functions necessary for an efficient market are performed in an unbiased manner.

    Fortunately, the concerns with the pure Transco model do not foreclose a viable approach with for-profit ITCs that operate in conjunction with a separate and independent RTO. An ITC could complement the RTO but not be the RTO. It would respond to the market’s price signals to pursue market-driven grid investments, but it would not run the RTO markets. This ITC would be compatible with the Eastern markets that use coordinated spot markets, locational marginal pricing (LMP) and financial transmission rights (FTRs). Separating an ITC’s ownership/investment functions from the independent RTO’s system/market operation functions would allow both to pursue their respective objectives, but with the ITC free to aggressively pursue its private interests without concerns about biasing the market. It would then be simpler to ensure independent RTO governance and a focus on the limited but essential tasks that the RTO must perform. Within this open architecture, multiple transmission owners, both private and public, traditional utility transmission owners and ITCs, could then be accommodated without requiring the RTO to be the monopoly grid owner.