R Street study finds stakeholder governance hasn’t kept pace with changing electricity markets

WASHINGTON (Oct. 5, 2017) – The rise of renewable resources and the introduction of virtual trading have caused tremendous changes in wholesale electricity markets in recent years. Yet the stakeholder governance processes employed by the independent system operators (ISOs) and regional transmission organizations (RTOs) that administer those markets haven’t always kept pace, a new R Street Institute policy study finds.

Prepared for R Street by staff and students at the Vermont Law School’s Institute for Energy and the Environment, the report does find RTO and ISO stakeholder processes generally work well. But changes in the composition of stakeholders and growth in the number of market participants, in addition to the introduction of innovative technologies and virtual trading, all have caused stresses that compromise how efficiently those processes operate.

To address those issues, the report’s authors recommend that ISOs and RTOs create a regular and ongoing review process to ensure all stakeholders have the opportunity to participate effectively.

“Tackling concerns in the stakeholder-governance process is only the first step,” said lead author Mark James. “Prioritizing solutions to issues identified by the market monitors is another critical step, as is addressing the growing conflict between long-term market efficiency and short-term political solutions.”

Finally, the report calls for increased vigilance from the Federal Energy Regulatory Commission (FERC) in how it assesses ISO and RTO proposals.

“Our research concludes that FERC at times is overly deferential to RTO proposals,” James said. “To maintain the balance, the report recommends that FERC focus a more critical eye on RTO proposals and provide more consideration of competing proposals.”

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