Regional transmission organizations offer consumer savings but come with some loss of local control

By Robert Zullo, Colorado Newsline

A report prepared for the South Carolina state legislature and released late last month determined that a range of electric market and transmission reforms — including creating a new independent organization to run the electric grid or joining an existing one — would bring  “substantial benefits” for customers, potentially as much as $362 million a year. 

The report by the Brattle Group, a Boston consulting firm, stems from the V.C. Summer nuclear plant fiasco that saddled the state’s ratepayers with billions in cost overruns for reactors that were never built.

And it’s the latest chapter in a long-running saga over a southern-fried electric grid anomaly.

The majority of U.S. electric customers live in areas managed by regional transmission organizations, which coordinate the flow of electricity, ensure reliability, plan transmission projects and run electric markets. In large parts of the West, consumers benefit from a separate market that helps move low cost electricity around and manages congestion on transmission lines. Colorado is not part of a regional transmission organizations, though it’s taking small steps toward being so. But most of the Southeast remains dominated by a handful of large utility companies that have successfully thrown back attempts to bring them under any kind of similar arrangement. 

“Basically, utilities have a lot of political power in the Southeast,” said Rob Gramlich, president of Grid Strategies, a consulting firm focused on integrating clean power into the grid. “It’s not like utilities didn’t have power in the Northeast or Midwest or California, but there was a strong movement 20 years ago to get to a more efficient type of market and utilities in the Southeast resisted any such efforts in their region.”

‘Unfettered control’ 

The South Carolina report, which got a lukewarm reception from lawmakers there, per the Charlotte Business Journal, comes as big employers like Google looking to meet corporate sustainability goals express frustration with the lack of market options in the Southeast and environmental groups, eager to speed up the renewable transition, push for a true wholesale market in the region. 

“Utilities in the Southeast have pretty much unfettered control over which generation they use and they’re not subject to any meaningful competition,” said Nick Guidi, an attorney with the Southern Environmental Law Center. Guidi and other market proponents say bringing the Southeast into a regional transmission organization or other type of competitive market construct would bring down wholesale electric costs for consumers, improve reliability in the face of increasing severe weather and help get more cheap renewable power onto the grid. 

However, utility companies and other opponents argue that regional transmission organizations and regional power markets add undue layers of complexity, reduce state oversight and take away control over utilities’ own operations. They also say state energy policy goals would take a backseat.

“We do not believe changing our integrated utility model is best for our customers and communities in North Carolina and South Carolina,” said Jeff Brooks, a spokesman for Duke Energy, which is headquartered in North Carolina and operates in both RTO and non-RTO areas. 

“The report overstates savings and doesn’t account for administrative and joining costs. Participation in an RTO would keep our coal plants running much longer than currently planned and would transfer critical aspects of our operations into the hands of a federally-run body which is not accountable to the citizens, regulators and elected officials of the states we serve.”

Utilities in the Southeast have pretty much unfettered control over which generation they use and they’re not subject to any meaningful competition.

– Nick Guidi, of the Southern Environmental Law Center

Southern Company, which operates the dominant utilities in Georgia and Alabama as well as the smaller Mississippi Power, did not respond to a list of questions about a potential Southeastern wholesale electric market or regional transmission organization. But CEO Thomas Fanning told The New York Times last year that “we absolutely are superior in every regard to those markets over time.”

The South Carolina report estimates that the biggest benefits for the state’s electric customers would come from integrating with PJM, though that would also require its neighbor North Carolina to do so. A bill filed in the North Carolina General Assembly would put $500,000 forward for a study similar to the one South Carolina just performed, citing the rolling blackouts from Elliott as a reason. A 2019 North Carolina white paper, also by Brattle, commissioned by consumer advocacy and clean energy business groups, has estimated that an RTO-operated market could yield hundreds of millions of dollars a year in benefits for electric customers there. 

‘Still better for consumers’

Generally, in a wholesale electric market, power plants compete to provide electricity to the grid. The cheapest generators run more, replacing output from more expensive plants and creating savings for consumers. That also allows utilities to buy power from the market when it’s less expensive than producing it themselves. Regional transmission organizations plan electric transmission projects on a regional basis, which can avoid redundant projects by neighboring utilities, as the Brattle group noted in the 2019 paper. 

Gramlich said regional transmission organizations and the power markets they run also enable large, seamless transfers of power to improve efficiency during regular operations and keep the lights on when the grid is under stress, such as during Winter Storm Elliott, when Duke Energy was forced to implement rolling blackouts in the Carolinas. The Tennessee Valley Authority, which also operates outside of an RTO, did the same during the storm. 

Though PJM, which runs the electric grid for neighboring Virginia, along with a small portion of North Carolina, and parts or all of 11 other states and the District of Columbia, also saw power plants hamstrung by the frigid weather, it avoided blackouts. 

“It’s not in the utilities’ nature to give up control of some of the operations and planning,” Gramlich said. “Even with some of the warts on RTOs, it’s still better for consumers than just having a vertically integrated franchise monopoly that does everything.”

There are indeed tradeoffs involved in being part of a regional electric grid, said Kent Chandler, chairman of the Public Service Commission in Kentucky, which is part of two different RTOs — PJM and the Midcontinent Independent System Operator (MISO) — and also includes territory that isn’t in one. 

“Outside of Texas we’re really the most unique state in terms of markets,” he said.  

Being part of an RTO, he added, does mean giving up a “certain amount of control,” though he noted that varies considerably depending on how the organizations are set up. 

“States are really on the outside looking in in PJM,” Chandler said, though he added that in other RTOs, notably MISO and Southwest Power Pool, “that is not the case.” 

And while he’s not advocating for or against a new market or RTO in the Southeast, he thinks the pros outweigh the cons for Kentucky. 

“Whatever shortcomings MISO or PJM have in terms of governance or transmission planning or whatever they are … they’re still better than not having the RTO,” he said. “I think the increase in reliability and the reduction in cost for market membership is better than not having them.”

Nevertheless, RTOs and power markets also add what can be immense levels of complexity and other headaches, like the long interconnection queues — essentially wait lists to connect to the grid that are holding up mostly new wind and solar projects — that have bedeviled MISO and PJM.

“RTOs are a 1990s idea that has yet to adapt to the clean energy era. The Brattle Study ignored the problems RTOs have encountered since being first rolled out by FERC 25 years ago,” the South Carolina AARP wrote in comments on the Brattle report. “RTOs are cumbersome, complicated, and expensive entities to deal with.“

Why it matters

The electric grid, utility regulation and electric markets are complicated. But everyone pays an electric bill, and the regimes that govern the power system all make a difference in the cost and the source of the electricity that gets delivered to homes and businesses. 

The Western Energy Imbalance Market says it’s delivered $3.4 billion in “gross benefits” (defined as cost savings, integration of renewables and “improved operational efficiencies” such as the reduction in the need for reserve power ) since 2014. Southwest Power Pool says its markets provide more than $744 million a year in net savings for participants. Entergy, a company that operates utilities in Arkansas, Louisiana, Mississippi and Texas and joined MISO amid prodding from the U.S. Department of Justice’s Antitrust Division, said Louisiana customers saved $120 million in the first year of membership. PJM, the nation’s largest RTO serving some 65 million people, says its regional grid and market operations create anywhere from $3.2 billion to $4 billion in savings a year.

That’s big money, proponents of markets and RTOs say, and it could deliver real value for electric customers in the Southeast, who have some of the highest energy burdens (the proportion of household income required to pay energy bills) and bills in the nation. 

One analysis by RMI, a nonprofit focused on decarbonization, posited that Southern Company, which has been under fire for climbing bills in Alabama and Georgia, says the utility giant could have saved its customers $1.5 billion between 2015 and 2020 if it was in a wholesale market that required “economic dispatch” of its coal plants, meaning operating them in order from lowest cost to highest and importing cheaper electricity from elsewhere. 

“Millions of Southerners struggle to pay their monthly electric and gas bills. More customers are cost-burdened in the South than in any other part of the country, and more than a third of the region’s population has trouble paying their energy bills,” the Southeast Energy Efficiency Alliance, an Atlanta nonprofit, wrote in a report released last month. “Low-income households and people of color pay a higher financial and health price to power their homes than everyone else.”

Eric Gimon, a senior fellow at Energy Innovation, a nonpartisan energy and climate policy think tank, worked on a 2020 report that found a “fully competitive” Southeast wholesale electric market would generate $384 billion in regional savings, create 285,000 clean energy jobs and cut carbon emissions from the electric sector by 37 percent by 2040. 

He said their study found that the biggest savings came when power plants were put under competitive pressure, adding that electric utilities or their parent companies often have an equity stake in the gas pipelines that feed their power plants and aren’t incentivized to change the generation mix for lower cost options like solar and battery storage. 

“People in the Southeast are paying a lot more for energy than they need to in order to keep the status quo that profits the shareholders and investors in these large utilities,” Gimon said. 

Remaining to be SEEM

Last year, a new market of sorts did launch for the Southeast. Called the Southeast Energy Exchange Market and founded by a group of regional utilities, the platform is intended to facilitate voluntary power trades between utilities.

“The SEEM platform will help save customers money and better integrate renewable resources, while ensuring all customers across the region realize the promise of renewables,” said Noel Black, Southern Company’s senior vice president of governmental affairs, when the market launched. 

But critics, including Guidi and Gramlich, say as currently constructed the Southeast Energy Exchange Market is woefully inadequate. Several environmental groups and other organizations are suing the Federal Energy Regulatory Commission over the market, arguing it flies in the face of allowing open access to transmission. 

Guidi said the market “completely failed” during Winter Storm Elliott, when power exchanges were most needed, and has seen its trade volume decrease since it launched in November. 

“It’s only been around for four months but you would hope to see some upward trend in trade volume,” Guidi said. 

The market also lacks crucial aspects: independent governance, transparency and competition, among other shortcomings, they said. A Google attorney called the market a “nothing burger” at an energy conference in Atlanta last year.

“SEEM could be built into something real,” Gramlich said. “As it stands it’s just kind of nickels and dimes. It’s not really of any significance.”