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Analysis of RTO Costs: A Comparative Study

Dive into the operational and administrative costs of key RTOs from 2001-2005, showcasing cost recovery mechanisms and expense breakdowns. Discover significant variations and trends in RTO expenses.

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Analysis of RTO Costs: A Comparative Study

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  1. The Costs of Participating in Restructured Wholesale Markets American Public Power Association February 5, 2007 William M. Bateman Robert C. Smith

  2. Introduction • The presentation is an overview of the study. • Study examined operational and administrative cost of 6 FERC Approved Regional Transmission Organizations (“RTO”). • Southwest Power Pool (“SPP”) • California ISO (“CAISO”) • ISO New England (“ISO-NE”) • Midwest ISO (“MISO”) • New York ISO (“NYISO”) • PJM Interconnection (“PJM”)

  3. Regional Transmission Organization(RTO) • Created in Order 2000 by the Federal Energy Regulatory Commission (“FERC”) to further the Commission’s goal of creating competitive wholesale electric markets. • RTOs are independent organizations that are responsible for the operation and reliability of the grid. • Three Stages of Development • Pre-Day 1 • Day 1 • Day 2

  4. Relative Sizes of RTOs

  5. RTO Cost Recovery • Costs are recovered through FERC approved charges in the RTO’s tariff. • Charges are generally assessed on a per megawatt-hour basis. • Mix of “Formula Rates” and “Stated Rates”. • The number and type of charges vary widely among the RTOs. • Some RTOs have one or two cost recovery mechanisms, or schedules, while others have a dozen or more.

  6. Study Methodology • The study examined RTO costs for 2001-2005. • Cost data taken from FERC Form 1 filed by each RTO. • Each cost examined to determine how much it contributed the RTOs overall cost. • Cost classified as either Operational or Administrative. • Operational costs are costs related to running the grid. • Administrative costs are other costs incurred by the RTOs. • Cost are actual dollars as reported on the Form 1.

  7. Overall Results

  8. Overall Results$/MWh

  9. Overall Results • For the study period, the $/MWh cost for Day 2 RTOs ranged from $0.393/MWh to $0.963/MWh • The Day 2 RTOs had a combined 5 year average cost of $0.658/MWh • The total cost is about 75% Administrative and about 25% Operational.

  10. Administrative Depreciation Costs Regulatory Costs Consulting Fees/Outside Services Administrative & General Salaries Operational Load Dispatching Overall ResultsCategories with the Largest Costs

  11. Overall Results • There is a significant variation in costs between the RTOs. • RTOs use different methods to account for and report costs. • FERC Order 668 established a new set of FERC accounting codes. RTOs will begin using these new codes for calendar year 2006.

  12. Southwest Power Pool(SPP) • Day 1 RTO. Approved in October 2004. • Only one year of data available: 2005 • Average cost was $0.240/MWh • 176 employees • Administrative & General Salaries, Regulatory Costs and Consulting Fees/Outside Services were the largest expenses. • SPP is implementing an Energy Imbalance Market. Expect that SPP’s operational cost will increase.

  13. California ISO(CAISO) • Day 2 RTO. Started 1997. • Data for 2001-2005 • Average cost was $0.829/MWh • 489 employees • Rents, Depreciation expense, Administrative & General Salaries, and load dispatching were the biggest expenses.

  14. ISO New England(ISO-NE) • Day 2 RTO. Approved 2005. Effectively operated as a Day 2 RTO since 2001. • Data for 2001-2005 • Average cost was $0.721/MWh • 400 employees • Administrative & General Salaries, Depreciation expense and Consulting fees/Outside services were the largest expenses.

  15. Midwest ISO(MISO) • Day 2 RTO. Approved as Day 1 in December 2001. Approved as Day 2 in 2005. • Data for 2002-2005 • Average cost was $0.296/MWh • 646 employees • Administrative & General Salaries, Consulting fees/Outside services, Regulatory debits, and Depreciation expense have been the largest expenses.

  16. New York ISO(NYISO) • Day 2 RTO. Started 1999. • Data for 2001-2005 • Average cost was $0.740/MWh • 400 employees • Administrative & General Salaries, Consulting fees/Outside services and Depreciation expense have been the largest expenses.

  17. PJM Interconnection(PJM) • Day 2 RTO. Approved 2001. • Data for 2001-2005 • Average cost was $0.583/MWh • 500 employees • Administrative & General Salaries, Load dispatching and Depreciation expense have been the largest expenses.

  18. Summary • Cost recovery is accomplished through various charges specified in the RTO tariff. • Total operational and administrative costs vary widely by RTO. • The Day 2 RTOs 5 year average cost was $0.658/MWh and the study period cost ranged from $0.393/MWh to $0.963/MWh. • Some RTO’s are seeing their $/MWh cost increase, while others are seeing it decrease. The overall $/MWh cost is stabilizing as the markets mature.

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