Independent Study of the Cost of Electricity
The undersigned organizations respectfully request that you direct the Government Accountability Office (GAO) or other independent oversight organization to undertake a detailed and objective study of the cost of electricity in the United States. Specifically, the policies under the jurisdiction of the Federal Energy Regulatory Commission (FERC)—the federal agency responsible for regulating the nation’s wholesale electricity markets—should be evaluated on the basis of their impact on the cost and reliability of delivered power.
We represent a number of America’s largest industrial consumers of electricity, as well as residential customers and public policy research organizations. We are concerned that federal regulators have not initiated an independent, empirical study to safeguard a basic element of modern society—reliable and affordable electricity. In order to keep our businesses competitive in both domestic and international markets—and to simply pay our residential electricity bills—we must have reliable, low-cost electricity. To that end, we need regulators who base their policy decisions on objective data and real-world impacts rather than assumptions by advocates.
The study we request should investigate the cost impacts of federal policy regarding market structure, namely the net benefits to retail consumers resulting from the formation of Regional Transmission Organizations (RTOs) and Independent System Operators (collectively “RTOs”). At minimum, it should examine how existing RTO market structures have impacted the cost of electricity to retail consumers. We also ask that the study explore the reliability impacts of wholesale market structure and, if resources allow, develop a set of best practices regarding RTO expansion.
More than two decades ago, FERC took ambitious steps to open competitive markets at the wholesale level, with the promise that FERC’s promotion of competition would “ensure that electricity consumers pay the lowest price possible for reliable service.” Many states also expanded competition at the retail level in search of consumer savings. This was a bold and unprecedented experiment in electricity regulation, but the impacts on customer bills appear to have been mixed. At the wholesale level, the electricity industry now finds itself in a state of limbo—about two-thirds of the country is served by competitive wholesale markets and the rest by traditional, regulated utility monopolies.
With no guidance from federal regulators, states and regions are independently exploring the impacts of RTOs. Today, battles over wholesale competition are taking place across the country, principally between incumbent utilities and a growing chorus of consumers who want more choice, better access to new technologies, or less exposure to the ratepayer risks associated with monopoly utilities.
Some utilities have responded to consumer efforts to expand wholesale competition by launching campaigns to persuade customers that RTOs are a “Really Terrible Option” and will raise their rates. The RTO debate has become controversial, yet the assertions made by both sides can and should be examined objectively using real-world data. For example, if both sides are right about the economics—that is, if there are substantial production cost savings from RTOs at the wholesale level, yet retail customer bills in RTO regions continue to climb—then Congress, FERC, and the states owe it to consumers to understand the disconnect and address it.
The study we request is long overdue. As GAO reported in 2008, “there is no consensus about whether RTO markets provide benefits to consumers or how they have influenced consumer electricity prices.” Despite the facts that (1) there is substantial evidence that RTOs reduce production costs15 and (2) FERC now tracks “performance metrics” for RTOs, these lines of analysis are incomplete and do not address the central question of the impact of RTOs on customer bills.
Further, this is not a subject of historical trivia. Three trends make it more important than ever that policymakers investigate the impacts of wholesale market policies on retail customers now:
1) RTO expansion (both voluntary and mandatory) is under consideration at the state, regional, and federal level,
2) State and federal policies (as well as private sector demand from individuals and corporations) are driving changes in the resource mix that will require large increases in spending on transmission infrastructure, and
3) Increased electrification of the economy places increasing pressure on the electricity system to satisfy new demand while keeping rates affordable.
With these trends in mind, we respectfully request that you direct the GAO or other independent organization to examine the cost and reliability impacts of wholesale markets. Regulators at FERC and the states cannot fulfill their statutory duties without understanding the fundamental relationship between market structure and the cost and reliability of electricity.
This is not a partisan issue—it is a matter of good governance, regulatory oversight, and, ultimately, the economic health of the nation. America’s families and businesses cannot thrive without reliable, low-cost electricity. Thank you for your consideration.
Most Respectfully,
Electricity Consumers Resource Council
Energy Choice Coalition
Public Citizen Association of Businesses Advocating for Tariff Equity
Carolina Utility Customers Association
Conservative Coalition for Climate Solutions
Conservative Energy Network
Heritage
Action for America
Industrial Energy Consumers of Pennsylvania
Louisiana Energy Users Group
R Street Institute
Cc: The Honorable Richard Glick, Chairman
The Honorable Neil Chatterjee, Commissioner
The Honorable James Danly, Commissioner
The Honorable Allison Clements, Commissioner
The Honorable Mark Christie, Commissioner Federal Energy Regulatory Commission
888 First Street N.E.
Washington, D.C. 20426
