Overview of Economic and Environmental Benefits of RTO/ISO Markets

Our nation faces significant energy and environmental policy challenges. The organized markets operated by the Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) are the best way to assure an efficient and adequate supply of electricity and to meet the nation’s current and future energy and environmental needs. RTOs and ISOs are delivering benefits today in the following areas:

America must take aggressive action to tackle our energy challenges, and the electric power industry is uniquely situated to lead the way. The COMPETE Coalition is dedicated to ensuring that policymakers at all levels recognize that well-structured organized electricity markets are essential. The RTOs and ISOs are providing the level playing field, renewable generation, demand resources, customer tools and efficient markets that are proving to be essential in achieving these goals and holding down costs to consumers along the way.

• Prices to Consumers. The organized markets are keeping prices affordable and saving consumers billions of dollars. According to an analysis of data from the Energy Information Administration, between 1997 and 2010, retail rates in states with competitive organized markets increased at a lesser rate (42.7%) than in states outside of organized competitive markets (46%), and the rate of increase in organized markets was less than the national average (43.4%). Average wholesale prices in PJM, NYISO, and ISO-New England in 2009 decli40% less than in 2008.
• Renewable Resources. Renewable resource developers are attracted to the RTO and ISO markets because of their fair rules, large regional scope and clear locational prices that correctly value energy. These markets provide economical balancing services for variable generation. Nearly 80% of installed wind capacity is now located in regions with organized competitive electricity markets, despite the fact that these areas represent only 44% of U.S. wind energy potential.
• Demand Response Resources. Demand response resources flourish in RTO and ISO markets. Almost 32,000 MW of demand response are available in North American RTOs and ISOs. Organized wholesale markets and policies supported by FERC have facilitated new entry by curtailment service providers, which has led to product and service innovation. In addition, NERC has said that demand response resources are providing critical reliability services. Thus, the tremendous growth in consumer demand response in RTOs and ISOs contributes to improved reliability.
• Innovation. Innovators, such as those providing state-of-the-art storage and demand resources, are choosing to install their advanced technologies in the RTO and ISO markets because of the ease of entry, level playing field, non-discriminatory rules and transparent prices. The RTO and ISO markets are leading the way in innovation.
• Smart Grid. The Smart Grid promises to transform both consumer and investor behavior, and this transformation will be most effectively realized in the RTO and ISO markets where transparent and credible price signals give consumers the information they need to make smart efficiency decisions. The organized markets will provide the most "bang for the buck" from our nation’s investment in the Smart Grid.
• Infrastructure Investment. An estimated $1.5 to $2 trillion in investment will be needed over the next 20 years to replace and modernize the nation’s electricity infrastructure. The RTO and ISO markets offer the best opportunity for investments to be made efficiently and reliably. RTO and ISO markets have proven attractive to generation developers, in particular wind. Perhaps most important, investors bear the risk in a market environment, thereby protecting consumers from the costs of bad business decisions and cost overruns.
• Efficiency. Organized competitive markets have produced documented efficiency improvements, allowing us to squeeze more from existing resources. In RTOs and ISOs, the heat rates of coal-fired generators improved 9.4% between 1998 and 2007, and the utilization rate of nuclear plants increased from 81% to 93% between 1996 and 2007.
• Market Monitoring. The RTOs and ISOs employ independent professional market monitors that add an extra level of consumer protection not found in the monopoly markets. Participants’ behavior is monitored in real time by independent analysts to ensure market power is not exercised and market rules are not violated. The monitors periodically assess market performance against metrics to assure prices are consistent with those expected in a competitive market. Market monitors regularly report that the markets are competitive.
• Synergy with GHG Reduction Program. Organized competitive electricity markets provide the accurate, transparent price signals that enable better utilization of the most cost-effective, efficient, and environmentally friendly resources. The ultimate goal of pricing carbon is to foster a fundamental change in both investor and consumer behavior, and this goal can be attained most efficiently if the supply and demand of both electricity and CO2 emissions are determined by accurate, market-driven price signals.

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