Policy Studies Energy and Environment

Problems in Electricity Market Governance: An Assessment

by Travis Kavulla

Aug 30, 2019

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Author

Travis Kavulla

Former Director, Energy

Key Points

Important energy policy decisions are being made by not-for-profit businesses that run the electric grid, called Regional Transmission Organizations (RTOs). This raises questions about the transparency and accountability of the RTOs’ decision-making processes.

The Federal Energy Regulatory Commission (FERC), the nation’s energy regulator, should assume leadership on important policy questions. Even if it cannot resolve them alone, FERC should not outsource important policy functions to an RTO. Instead, it should work with state officials or task its own advisory committee with resolving them.

When surveyed, large consumers found Texas’ RTO, the Electric Reliability Council of Texas (ERCOT), to be the most consumer-friendly RTO. They also found value in the competition between generators that the RTO markets offer, which is still better than the alternative where a single monopoly dominates the sector.

Press Release

Street Policy Study No. 180: Problems in Electricity Market Governance: An Assessment

Introduction

In most of the United States, electricity markets are organized into Regional Transmission Organizations (RTOs): businesses that operate but do not own the grid. RTOs run auctions for electricity using the grid as the physical platform, ensuring the economically efficient use of the grid. They also make sure the grid is run in a manner that is reliable. Although RTOs may have once been considered to function like air traffic controllers, their remit has expanded significantly. For better or worse, RTOs now shape the value of the assets that produce and transmit power—and, in doing so, RTOs have a significant influence over the kind of power plants that are built and over the network that stitches them together with consumers.

RTOs play an important role in the American energy sector. But as organizations, they are highly unusual. They are neither government agencies nor ordinary businesses; they operate instead as quasi-autonomous nongovernmental organizations, or “quangos.” This paper examines how RTOs make decisions and how they are held (or not held) accountable. It does so by taking stock of the viewpoints offered by consumers—the ultimate intended beneficiaries of RTOs’ role in the electricity power sector. In the course of research for this paper, R Street conducted a nonscientific, surveybased assessment of consumer interests, receiving replies from 12 government offices that represent consumers, five nongovernmental consumer advocacy organizations, and six individual, large consumers. Their responses are for the most part confidential, but they inform the section of this paper titled “A Consumer-Focused Assessment of RTO Governance.”

Read the full introduction and the rest of the study here.