Government is generally dysfunctional. The bigger the government, the more dysfunctional it is. That’s why the principle of subsidiarity is so important. It means leaving decisions at the level where they can best be performed. Let families decide what’s best for children. Let fire companies do emergency services. Let municipalities provide the neighborhood parks, run the schools, and maintain the streets. Let the counties keep the records and do human services. Let the states provide the highways and operate the justice system. Let the Feds do the wars. Whenever this principle is violated, there is dysfunctionality.
I see a few problems with this analysis: (1) RTO market prices are wholesale prices while the EIA data are retail prices. We can't know if RTO prices are higher than non-RTO prices unless we compare wholesale prices in RTO states and non-RTO states. It could be that the higher retail prices in RTO states result from higher non-electricity retail charges in the RTO states; (2) one major reason that some states originally decided to participate in RTOs and others did not was that electricity prices in the RTO states were higher than in the non-RTO states--the hope was that the RTO could reduce prices. If you really want to know if RTOs have delivered on their promise you have to figure out what rates in RTO states would be if the utilities in those states had not joined an RTO; (3) every utility is subject to extensive government oversight, frequently both federal and state. Don't think that blaming the government is a productive task.
A couple of interesting factoids. Some states have both RTO and non RTO regions. North Carolina is mostly non RTO but has a small portion served by Dominion(Virginia) in the North East part of the state that is in PJM. Same for Tennessee, Kentucky, Texas, and of all places California. The parts of TN, KY, and TX that are either in RTO's(or not in the case of El Paso, TX) are fairly small and insignificant. On the other hand the non RTO areas of California include places like the City of Los Angeles, Burbank, Glendale, and Pasadena along with much of the Sacramento area.
Perhaps most important significant difference is among states that have fully bundled/vertically integrated service within an RTO like Virginia and West Virginia and states that have fully deregulated so called open access regimes where there is no regulated generation. This gets a bit more complex keeping in mind that even in say Massachusetts there are still several dozen muni utilities that have fully bundled service and own/contract for generation on a long term basis. California in the CAISO/IOU utilities doesn't quite fit into either category. CA has limited utility owned generation i.e. Diablo Canyon and the hydro fleet. There are also a number of IOU owned gas plants that operate on a full cost of service basis with guaranteed gas transportation etc.
**PJM in particular has a capacity market "opt-out" regime that Virginia, North Carolina, West Virginia, Kentucky, Indiana, Michigan, and Tennessee all use for the parts of there respective states in PJM that are all traditionally regulated.
My husband George took a look at this data. Actually, it may not be exactly this data....it was on a different email thread. At any rate, he gave me permission to quote his work here. From George T. Angwin.
"I looked over the data in the spreadsheet and asked it a few questions and made some observations.
- Why only 43 states?
- I assume the numbers are cents per kWh. Why so low? I live in Vermont and pay just under 30 cents/kWh, not 19.
- The standard deviation for the 32 RTO states is 5.04, for the 11 non-RTO states 1.33, a factor of almost 4! Very strange.
- I noticed that the means of CAISO and ISO-NE were about double the other RTOs except for NYISO. This suggested a cause of the wide RTO standard deviation.
I split the RTO states into two groups: Power = CAISO, ISO-NE, and NYISO (8 states) and Midwest = the other 24 states. See the attachment. Note that the Midwest RTO states and the non-RTO states have indistinguishable means, while the 95% interval of the Power RTO states barely overlaps that of the other groups.
I conclude that the original question is wrong: the RTO states do not form a coherent population, so comparing them to the non-RTO states will not be very illuminating.
Thanks for everyone's contributions. The electric power industry is, for better or worse, incredibly complicated starting with different regulatory frameworks in 50 states, all of which change at different times and in different ways. And layered on that is federal regulation by FERC with different rules applicable to utilities within ISO/RTOs and outside ISO/RTOs -- and some states have utilities within and outside ISO/RTOs. And FERC regulations have changed over time. And Texas is mostly outside FERC jurisdiction.
Getting to the important question of government good or bad, ISOs/RTOs good or bad, government is involved one way or the other. The least "government" role in the electric industry is where competition in generation has been implemented. Without competition in generation the integrated utility controls and owns what is built and gets a guaranteed regulated return on that capital. Competition can only occur in the ISO/RTO framework because there is an independent system operator.
And, importantly, only some states that are within ISO/RTOs subject their utilities to competition in generation.
So to get apples to apples on competition versus monopoly, government versus less government , we have to examine the empirical record on states with competition in generation versus those without.
Thank you for this note, Steve! I subscribe to RTO insider, so I must have read this at some point. Excellent and thorough research in your latest column!
But the devil is in the interpretation of the data. As I see it, the dataset is formulated to give a certain answer. Why did you leave CA out of the "RTO" set? Last I looked, CA was an RTO, and I think it was the first one. So it has the longest history as an RTO. Somehow, including CA would not be apples-to-apples?
The great hope of RTOs was that competition would lower prices for the end-user. If you look at a complete data set, with decades of history for many RTOs....the RTO areas are still more expensive.
In terms of lowering carbon content of the resource mix.....ummm....the RTOs have generally less local regulatory oversight. The PUCs in RTO areas are not completely powerless, but they can't adequately ensure resource adequacy when the auctions determine how (and if) power plants get paid. (tiny joke on adequacy) The PUCs have no way to value the reliability of a combined cycle, nuclear or coal plant in their area. So the RTO areas default more readily to natural gas and renewables...two legs of what I call the Fatal Trifecta for a grid. (The third leg is "we'll import from the neighbors.")
By the way, I'm on a email thread where some RTO defenders note that if we left CA and New England out, prices would look good for RTOs. As a former researcher in hard science (corrosion chemistry), I don't trust that sort of data set.
Thank you for this post, and for your work. Really. You and Borenstein are among the few people who even tackle the issue of whether RTOs have decreased end-user prices. I am deeply appreciative.
Thank you for this informed comment! You raise great questions/subjects.
Let's address CA first (yes CAISO is an ISO/RTO). The Bushnell analysis here, https://energyathaas.wordpress.com/2023/01/17/more-breaking-news-california-electricity-prices-are-still-high/, first did the comparison including CA which showed a small decrease -- but still a decrease -- in the difference between regulated and restructured states. Then he removed CA for the reasons he gave and then provided the chart that I used. Bushnell summarized: "This breakdown of PG&E’s rates illustrates the sources of the increases. All components have risen since 2013, with the largest percent increases hitting the distribution and “other” category. This latter category includes wildfire costs, which are now approaching half a cent per kWh. An important fact to consider is that all of these categories are absorbing the cost-shift created from rooftop solar. These costs are estimated to have added 2-3 cents/kWh to prices in PG&E’s territory in 2019, a figure that has surely increased since then as residential rates and solar PV adoption have risen. So California’s rising prices can be traced to higher energy procurement costs, increases in transmission, and most significantly, distribution costs." In other words, not due to wholesale generation which is (sort of) deregulated in CA.
Yes, the restructured/competition states' rates are still higher but as Bushnell pointed out: Retail prices in states that deregulated generation were already very high. As Bushnell said, “That’s a big part of why they deregulated!” So the measure of success shouldn't be whether deregulated states’ rates are still higher than other states, it’s whether their rates are lower than they would have been if they hadn’t deregulated.
Regarding carbon emissions I can't speak to the rest of the county but in PJM there has been a dramatic decrease in carbon emissions due -- not to renewables -- but to new gas crowding out old coal. My column on that subject is here, https://www.energy-counsel.com/docs/NRDC-Prescribes-More-Carbon-Emissions.pdf. And I think this phenomenon is greatest in the PJM competition states which would explain why emissions have gone down much more in those states than in the PJM regulated/monopoly states.
Regarding capacity markets my take has been: "PJM’s capacity market (like other RTO capacity markets) doesn’t save uneconomic coal plants, doesn’t impose excessive costs on consumers, doesn’t suppress renewable resources and is a bulwark against bailout claims for uneconomic coal units that should retire."
Regarding renewables I wouldn't say that RTOs tend to favor them in procurement. Instead their reliability/capacity value is heavily discounted in the auctions due to their intermittent/non-dispatchable nature. Where renewables get a boost is from state RPS standards which exist in both regulated and restructured states.
Thanks for the opportunity to address the very important questions/subjects you raise!
Thank you I had found the article at the Haas site, but the article on your blog was new to me. I appreciate learning about it.
I also want to tell you that anyone who can answer NRDC without losing his temper is a really fine person! You are a really fine person!
Meanwhile, I do agree that most of our carbon emission reduction is due to the great switch to natural gas. Every numerical analysis shows this.
I will disagree, though, about RTOs favoring renewables. RTOs DO favor renewables. We have to start with the fact that in most RTOs, most of the money is in the energy market, not the capacity market. And it is only the capacity value payment that is discounted. The energy market is straight up. 1 MWh of wind is paid the same as 1 MWh of nuclear. In general, both will take the clearing price. But 1 KwMonth of capacity is discounted for wind. ELCC and all that.
Frankly, I would say that most of the money is in the energy market in all RTOS, but I would have to back up such an inclusive statement with a ton of research. "Most" is a convenient word in this case.
Next, let's look at dispatch. The wind can bid in negative in the energy market (and does so) because it doesn't have to sell its kWh to make a living. It will receive its PTC and sell a REC if it puts a kWh on the grid, even if the grid is running at zero. Plus, wind will usually be chosen first if it is available. Economic Dispatch means the least expensive plants are first in line for dispatch, and if wind is bidding in at zero cents (or minus three cents) it will be first in line. In conclusion, RTOs favor renewables.
I want to close by thanking you, Borenstein and Bushnell for the excellent work you do about the reality of these markets. I also want to thank Borenstein and Bushnell for allowing me to use an illustration from their 2015 paper in my 2020 book, "Shorting the Grid." Thank you all!
Thanks again for more excellent commentary. I agree with a lot of what you've said except for the implication that the energy value of renewables should be discounted as well as their capacity value. The concept of the capacity market layered on an energy market is that the capacity market represents the reliability value.
You are right about renewables offering at less than zero because of the PTC. That is a function of federal tax/environmental policy. I don't think RTOs should somehow try to override that for reasons I discussed in yet another column here, https://energy-counsel.com/wp-content/uploads/2023/05/Single-Clearing-Price.pdf.
I did not mean to imply that renewable kWh should be discounted. I was just answering what seemed to be the implication in this statement:
"Regarding renewables I wouldn't say that RTOs tend to favor them in procurement. Instead their reliability/capacity value is heavily discounted in the auctions due to their intermittent/non-dispatchable nature."
I wanted to clarify that "capacity-value discounted" is relatively small part of a power plant's revenues. When I read it the sentence the first time, it seemed that values for renewables were discounted in all "the auctions."
Thank you for an extremely important post showing the economic waste being imposed by RTOs and ISOs. Across the U.S. the costs are measured in billions of dollars annually. When the important metric of grid reliability is examined, the tendency is for ISO and RTO areas to have lower reliability, as Meredith Angwin's book makes clear . This has been amply demonstrated by CAISO. (For some reason, you placed CAISO's most expensive power rates at the bottom of the ISO chart. It should be at the top as the most expensive.). Based on this pair of metrics, ISOs are the worst of all worlds.
However, it gets even worse!! There was an important 2016 U.S. Supreme Court Decision, Hughes v. Talen Energy. The important takeaway for multistate ISOs and RTOs is that states cannot impose environmental regulations regarding electric power generation that impede the interstate flow of power within the multistate ISO. The reasoning is based on federal preemption established in the Commerce Clause of the Constitution. Thus, PacifiCorp, an operator of coal-fired power plants has been advocating for a multistate CAISO since 2016, likely as a means to nullify California environmental laws such as SB 1368 (Perata, 2006) that are a barrier to expanding their export of coal-fired generation into California. CAISO grid regionaliztion would endanger nuclear power plants in Washington state, California, and Arizona as PacifiCorp could utilize predatory pricing to put the nuclear power plants in those states out of business. For details, please see the May 13, 2024 GreenNUKE Substack article, "CGNP's Opposition to the WWGPI." https://greennuke.substack.com/p/cgnps-opposition-to-the-wwgpi. GreenNUKE is working on additional articles regarding this topic.
Prior to the invention of RTOs and “deregulation” the vertically integrated utilities did just fine. Prices were reasonable, the regulator tried to represent the customer, rates were reasonable. Deregulation and RTOs were the one two punch. The final knockout blow is being delivered by the RPS standards, enforced by the RTO. I believe PG&E is on its way to bankruptcy #3, due to rates being so high that few can afford them.
Often, and in the specific case of its energy policy, the dysfunctionality of a governmental policy is the result of mistaking a "complex" physical system for a "non-complex" physical system in the construction of a model of this system, where a "complex" physical system exhibits one or more "emergent properties" that is a property of the whole system an not of the separate parts of this system whereas a "non-complex" physical system exhibits no such properties. Every physical system that is under the control of a government exhibits at least the emergent property of stability thus being an example of a "complex" physical system yet governments frequently treat these systems as if they were "non-complex" physical systems in modelling them. Amongst the consequences from this governmental incompetency is the public pollicy of unnecessarily "decarbonizing: the world economy.
I received the following comment from Philippe Blankert who indicated he could not, for some reason, comment:
Electric rates in RTO regions can be higher for a few reasons, but it's not always the case. Here's a breakdown:
Potential downsides of RTOs affecting rates:
Congestion costs: RTOs manage a large area, and sometimes power lines get congested, meaning they can't deliver all the electricity generated from cheaper sources to high-demand areas. This can force those areas to rely on more expensive local generation, driving up the wholesale price (which gets passed on to consumers).
Capacity market design: Some RTOs have capacity markets where power plants are paid to be available even if not running. This can incentivize building more fossil fuel plants, locking in higher costs for consumers.
Potential upsides of RTOs that can help rates:
Resource diversity: RTOs allow states with different resources (like wind in one state and solar in another) to trade electricity, potentially lowering costs for everyone.
Competition: RTOs create a competitive market for wholesale electricity, which can drive down prices compared to non-RTO regions with limited competition.
Other factors affecting rates:
State energy policy: States set their own energy policies, which can influence the cost of generation (e.g., renewable energy mandates can increase costs initially).
Fuel costs: The price of fuels like natural gas used in power plants can significantly impact electricity costs.
Overall:
It's important to look at the specific situation in each RTO region. While congestion and capacity market design can raise rates in some cases, RTOs can also promote competition and resource diversity, potentially leading to lower costs.
RTO's may very well be inefficient and this analysis may well give an insight into this. Seems a bit of caution is warranted as there are many variables at play. Some areas have a higher proportion of lower cost generation. Here in the NE a lot is spent on keeping tree away from power lines. There are many other factors to consider.
I purchased Meredith Angwin’s book recently and enjoyed reading about her insights on the grid in general and specifically about the New England ISO. One thing I took away from her book was how different the various RTOs can be. So, that inspired me to look at the rates of the NEISO states and the rates in the states under MISO. I used the data you published and included only those 8 states in MISO that were covered primarily by MISO only (MN,WI,MI,IL,IA,IN,AK,LA.) The average rate of MISO states was about 11 cents per kWh versus about 21 cents per kWh in NEISO states. So there is something going on here that has nothing to do with the RTO system. I am woefully ignorant about the energy grid so I look forward to further posts by more knowledge people such as yourself and Meredith to make some sense of this frustratingly complex energy grid we rely upon.
The Midwestern MISO states with the exception of Central and Southern Illinois have mostly retained vertical integration IN the RTO(akin to Virginia and West Virginia in PJM).
Figuring this out must be above my pay grade because seeing a pattern eludes me. It appears that prices are higher in Blue States as you say, but outside of California the highest cost states are clustered in the Northeast. Other than in Maine and Vermont, renewables don’t provide much electricity in the Northeast, so there must be another culprit. And one of the lowest cost states is Iowa, a Red State that ranks towards the top when compared to other states in terms of renewable energy production (and usage) primarily due to wind.
Vermont's generation is so tiny, it's mostly irrelevant for nationwide scale. It generates less than 44% on its load (2023 EIA data). Massachusetts gets 24% generation from Solar and has fifth highest rates. Overall New England is an energy desert and has major challenges for prolonged cold spells. Iowa can thank their Senator Grassley for the abominable Wind Production Tax Credits. Yes, Iowa has lower rates and the rest of us suckers are subsidizing them. Iowa had the highest percentage of Wind generation (59%).
I agree, Chuck Grassley doesn’t mind subsidizing technologies that benefits his constituents. Maybe we should focus less on Red or Blue and more upon Green(backs).
Hi Meredith, minor, but important difference. You lumped RTOs and ISOs into the same group. They are nit the same, ISOs exert much more control and their rates reflect the difference. CAISO has repeatedly tried to reach down into the distribution provider domain.
Hi Kilovar. I have not seen any studies describing different rates between ISOs and RTOs. As a matter of simplicity, I just look at Auctions vs Vertically Integrated. Do you know of some studies showing this difference? I would be grateful!
Minor quibble. You are correct to list Texas as an RTO state (ERCOT). However, on the map, you show it as mostly non-RTO. There are non-RTO areas within Texas...mostly municipal utilities. But most of Texas is ERCOT.
Thank you so much, Meredith! I didn't see that when I grabbed the image, but I was able to fix it with a graphics program I have. Love your book by the way!
While the numbers are accurate as reported by EIA, they do not tell the whole story. What would be more insightful would be to break down the state costs by energy, T & D charges, taxes, and social programs components. One may find that the differences in total residential rate may be driven by other factors such as taxes and social programs and not just energy cost which is under ISO/RTO purview.
John, when I wrote Shorting, I was able to find a few studies that did a more detailed comparison. RTOs were still more expensive.
A more interesting question to me is why there aren't there lots of studies, maybe one or two every year or so, comparing the consumer costs in RTO and vertically-integrated areas? The studies could compare taxes, social programs, cost of imports, all sorts of things. I think that these studies (which pretty much don't exist) would answer a question that a lot of people don't want answered. I am pretty sure that such studies would show RTOs as more expensive.
With any luck, people will comment here with lots of links to such studies. That would be great for me, because I continue to work in this area! But I'm not holding my breath waiting for the list of studies.
I see a few problems with this analysis: (1) RTO market prices are wholesale prices while the EIA data are retail prices. We can't know if RTO prices are higher than non-RTO prices unless we compare wholesale prices in RTO states and non-RTO states. It could be that the higher retail prices in RTO states result from higher non-electricity retail charges in the RTO states; (2) one major reason that some states originally decided to participate in RTOs and others did not was that electricity prices in the RTO states were higher than in the non-RTO states--the hope was that the RTO could reduce prices. If you really want to know if RTOs have delivered on their promise you have to figure out what rates in RTO states would be if the utilities in those states had not joined an RTO; (3) every utility is subject to extensive government oversight, frequently both federal and state. Don't think that blaming the government is a productive task.
Data makes things clear! Thanks for the philosophical view of government as well. This is why a big federal government is bad for everyone/everything.
A couple of interesting factoids. Some states have both RTO and non RTO regions. North Carolina is mostly non RTO but has a small portion served by Dominion(Virginia) in the North East part of the state that is in PJM. Same for Tennessee, Kentucky, Texas, and of all places California. The parts of TN, KY, and TX that are either in RTO's(or not in the case of El Paso, TX) are fairly small and insignificant. On the other hand the non RTO areas of California include places like the City of Los Angeles, Burbank, Glendale, and Pasadena along with much of the Sacramento area.
Perhaps most important significant difference is among states that have fully bundled/vertically integrated service within an RTO like Virginia and West Virginia and states that have fully deregulated so called open access regimes where there is no regulated generation. This gets a bit more complex keeping in mind that even in say Massachusetts there are still several dozen muni utilities that have fully bundled service and own/contract for generation on a long term basis. California in the CAISO/IOU utilities doesn't quite fit into either category. CA has limited utility owned generation i.e. Diablo Canyon and the hydro fleet. There are also a number of IOU owned gas plants that operate on a full cost of service basis with guaranteed gas transportation etc.
**PJM in particular has a capacity market "opt-out" regime that Virginia, North Carolina, West Virginia, Kentucky, Indiana, Michigan, and Tennessee all use for the parts of there respective states in PJM that are all traditionally regulated.
Hi friends,
My husband George took a look at this data. Actually, it may not be exactly this data....it was on a different email thread. At any rate, he gave me permission to quote his work here. From George T. Angwin.
"I looked over the data in the spreadsheet and asked it a few questions and made some observations.
- Why only 43 states?
- I assume the numbers are cents per kWh. Why so low? I live in Vermont and pay just under 30 cents/kWh, not 19.
- The standard deviation for the 32 RTO states is 5.04, for the 11 non-RTO states 1.33, a factor of almost 4! Very strange.
- I noticed that the means of CAISO and ISO-NE were about double the other RTOs except for NYISO. This suggested a cause of the wide RTO standard deviation.
I split the RTO states into two groups: Power = CAISO, ISO-NE, and NYISO (8 states) and Midwest = the other 24 states. See the attachment. Note that the Midwest RTO states and the non-RTO states have indistinguishable means, while the 95% interval of the Power RTO states barely overlaps that of the other groups.
I conclude that the original question is wrong: the RTO states do not form a coherent population, so comparing them to the non-RTO states will not be very illuminating.
I recommend the work of Borenstein and Bushnell for these questions. The latest post that I know of is at https://energyathaas.wordpress.com/2023/01/17/more-breaking-news-california-electricity-prices-are-still-high/
Hi Folks,
Thanks for everyone's contributions. The electric power industry is, for better or worse, incredibly complicated starting with different regulatory frameworks in 50 states, all of which change at different times and in different ways. And layered on that is federal regulation by FERC with different rules applicable to utilities within ISO/RTOs and outside ISO/RTOs -- and some states have utilities within and outside ISO/RTOs. And FERC regulations have changed over time. And Texas is mostly outside FERC jurisdiction.
About differences between ISOs and RTOs there really isn't much. Here are a couple sources of information on that: https://www.pcienergysolutions.com/2022/11/29/whats-the-difference-between-iso-and-rto/, and https://insidelines.pjm.com/pjm-as-an-rto/
Getting to the important question of government good or bad, ISOs/RTOs good or bad, government is involved one way or the other. The least "government" role in the electric industry is where competition in generation has been implemented. Without competition in generation the integrated utility controls and owns what is built and gets a guaranteed regulated return on that capital. Competition can only occur in the ISO/RTO framework because there is an independent system operator.
And, importantly, only some states that are within ISO/RTOs subject their utilities to competition in generation.
So to get apples to apples on competition versus monopoly, government versus less government , we have to examine the empirical record on states with competition in generation versus those without.
My latest column addressing that question is here, https://energy-counsel.com/wp-content/uploads/2023/07/Competition-Versus-Monopoly.pdf
Best wishes,
Steve
Hi Steve,
Thank you for this note, Steve! I subscribe to RTO insider, so I must have read this at some point. Excellent and thorough research in your latest column!
But the devil is in the interpretation of the data. As I see it, the dataset is formulated to give a certain answer. Why did you leave CA out of the "RTO" set? Last I looked, CA was an RTO, and I think it was the first one. So it has the longest history as an RTO. Somehow, including CA would not be apples-to-apples?
The great hope of RTOs was that competition would lower prices for the end-user. If you look at a complete data set, with decades of history for many RTOs....the RTO areas are still more expensive.
In terms of lowering carbon content of the resource mix.....ummm....the RTOs have generally less local regulatory oversight. The PUCs in RTO areas are not completely powerless, but they can't adequately ensure resource adequacy when the auctions determine how (and if) power plants get paid. (tiny joke on adequacy) The PUCs have no way to value the reliability of a combined cycle, nuclear or coal plant in their area. So the RTO areas default more readily to natural gas and renewables...two legs of what I call the Fatal Trifecta for a grid. (The third leg is "we'll import from the neighbors.")
By the way, I'm on a email thread where some RTO defenders note that if we left CA and New England out, prices would look good for RTOs. As a former researcher in hard science (corrosion chemistry), I don't trust that sort of data set.
Thank you for this post, and for your work. Really. You and Borenstein are among the few people who even tackle the issue of whether RTOs have decreased end-user prices. I am deeply appreciative.
Best regards,
Meredith
Best regards,
Meredith
Hi Meredith,
Thank you for this informed comment! You raise great questions/subjects.
Let's address CA first (yes CAISO is an ISO/RTO). The Bushnell analysis here, https://energyathaas.wordpress.com/2023/01/17/more-breaking-news-california-electricity-prices-are-still-high/, first did the comparison including CA which showed a small decrease -- but still a decrease -- in the difference between regulated and restructured states. Then he removed CA for the reasons he gave and then provided the chart that I used. Bushnell summarized: "This breakdown of PG&E’s rates illustrates the sources of the increases. All components have risen since 2013, with the largest percent increases hitting the distribution and “other” category. This latter category includes wildfire costs, which are now approaching half a cent per kWh. An important fact to consider is that all of these categories are absorbing the cost-shift created from rooftop solar. These costs are estimated to have added 2-3 cents/kWh to prices in PG&E’s territory in 2019, a figure that has surely increased since then as residential rates and solar PV adoption have risen. So California’s rising prices can be traced to higher energy procurement costs, increases in transmission, and most significantly, distribution costs." In other words, not due to wholesale generation which is (sort of) deregulated in CA.
Yes, the restructured/competition states' rates are still higher but as Bushnell pointed out: Retail prices in states that deregulated generation were already very high. As Bushnell said, “That’s a big part of why they deregulated!” So the measure of success shouldn't be whether deregulated states’ rates are still higher than other states, it’s whether their rates are lower than they would have been if they hadn’t deregulated.
Regarding carbon emissions I can't speak to the rest of the county but in PJM there has been a dramatic decrease in carbon emissions due -- not to renewables -- but to new gas crowding out old coal. My column on that subject is here, https://www.energy-counsel.com/docs/NRDC-Prescribes-More-Carbon-Emissions.pdf. And I think this phenomenon is greatest in the PJM competition states which would explain why emissions have gone down much more in those states than in the PJM regulated/monopoly states.
Regarding capacity markets my take has been: "PJM’s capacity market (like other RTO capacity markets) doesn’t save uneconomic coal plants, doesn’t impose excessive costs on consumers, doesn’t suppress renewable resources and is a bulwark against bailout claims for uneconomic coal units that should retire."
Regarding renewables I wouldn't say that RTOs tend to favor them in procurement. Instead their reliability/capacity value is heavily discounted in the auctions due to their intermittent/non-dispatchable nature. Where renewables get a boost is from state RPS standards which exist in both regulated and restructured states.
Thanks for the opportunity to address the very important questions/subjects you raise!
Best wishes,
Steve
Steve,
Thank you I had found the article at the Haas site, but the article on your blog was new to me. I appreciate learning about it.
I also want to tell you that anyone who can answer NRDC without losing his temper is a really fine person! You are a really fine person!
Meanwhile, I do agree that most of our carbon emission reduction is due to the great switch to natural gas. Every numerical analysis shows this.
I will disagree, though, about RTOs favoring renewables. RTOs DO favor renewables. We have to start with the fact that in most RTOs, most of the money is in the energy market, not the capacity market. And it is only the capacity value payment that is discounted. The energy market is straight up. 1 MWh of wind is paid the same as 1 MWh of nuclear. In general, both will take the clearing price. But 1 KwMonth of capacity is discounted for wind. ELCC and all that.
Frankly, I would say that most of the money is in the energy market in all RTOS, but I would have to back up such an inclusive statement with a ton of research. "Most" is a convenient word in this case.
Next, let's look at dispatch. The wind can bid in negative in the energy market (and does so) because it doesn't have to sell its kWh to make a living. It will receive its PTC and sell a REC if it puts a kWh on the grid, even if the grid is running at zero. Plus, wind will usually be chosen first if it is available. Economic Dispatch means the least expensive plants are first in line for dispatch, and if wind is bidding in at zero cents (or minus three cents) it will be first in line. In conclusion, RTOs favor renewables.
I want to close by thanking you, Borenstein and Bushnell for the excellent work you do about the reality of these markets. I also want to thank Borenstein and Bushnell for allowing me to use an illustration from their 2015 paper in my 2020 book, "Shorting the Grid." Thank you all!
Hi Meredith,
Thanks again for more excellent commentary. I agree with a lot of what you've said except for the implication that the energy value of renewables should be discounted as well as their capacity value. The concept of the capacity market layered on an energy market is that the capacity market represents the reliability value.
You are right about the vast bulk of generator revenue being from the energy market, for example slide 8 of the deck here, https://www.monitoringanalytics.com/reports/PJM_State_of_the_Market/2023/2023-som-pjm-press-briefing.pdf. But I don't view that as a flaw.
You are right about renewables offering at less than zero because of the PTC. That is a function of federal tax/environmental policy. I don't think RTOs should somehow try to override that for reasons I discussed in yet another column here, https://energy-counsel.com/wp-content/uploads/2023/05/Single-Clearing-Price.pdf.
Again, thanks and best wishes,
Steve
Steve,
Thank you again. Great links, too!
I did not mean to imply that renewable kWh should be discounted. I was just answering what seemed to be the implication in this statement:
"Regarding renewables I wouldn't say that RTOs tend to favor them in procurement. Instead their reliability/capacity value is heavily discounted in the auctions due to their intermittent/non-dispatchable nature."
I wanted to clarify that "capacity-value discounted" is relatively small part of a power plant's revenues. When I read it the sentence the first time, it seemed that values for renewables were discounted in all "the auctions."
Thank you and best wishes!
Meredith
Thank you for an extremely important post showing the economic waste being imposed by RTOs and ISOs. Across the U.S. the costs are measured in billions of dollars annually. When the important metric of grid reliability is examined, the tendency is for ISO and RTO areas to have lower reliability, as Meredith Angwin's book makes clear . This has been amply demonstrated by CAISO. (For some reason, you placed CAISO's most expensive power rates at the bottom of the ISO chart. It should be at the top as the most expensive.). Based on this pair of metrics, ISOs are the worst of all worlds.
However, it gets even worse!! There was an important 2016 U.S. Supreme Court Decision, Hughes v. Talen Energy. The important takeaway for multistate ISOs and RTOs is that states cannot impose environmental regulations regarding electric power generation that impede the interstate flow of power within the multistate ISO. The reasoning is based on federal preemption established in the Commerce Clause of the Constitution. Thus, PacifiCorp, an operator of coal-fired power plants has been advocating for a multistate CAISO since 2016, likely as a means to nullify California environmental laws such as SB 1368 (Perata, 2006) that are a barrier to expanding their export of coal-fired generation into California. CAISO grid regionaliztion would endanger nuclear power plants in Washington state, California, and Arizona as PacifiCorp could utilize predatory pricing to put the nuclear power plants in those states out of business. For details, please see the May 13, 2024 GreenNUKE Substack article, "CGNP's Opposition to the WWGPI." https://greennuke.substack.com/p/cgnps-opposition-to-the-wwgpi. GreenNUKE is working on additional articles regarding this topic.
Thank you this excellent comment, Gene! By the way I have sorted the numbers in both tables by rates now.
Prior to the invention of RTOs and “deregulation” the vertically integrated utilities did just fine. Prices were reasonable, the regulator tried to represent the customer, rates were reasonable. Deregulation and RTOs were the one two punch. The final knockout blow is being delivered by the RPS standards, enforced by the RTO. I believe PG&E is on its way to bankruptcy #3, due to rates being so high that few can afford them.
Often, and in the specific case of its energy policy, the dysfunctionality of a governmental policy is the result of mistaking a "complex" physical system for a "non-complex" physical system in the construction of a model of this system, where a "complex" physical system exhibits one or more "emergent properties" that is a property of the whole system an not of the separate parts of this system whereas a "non-complex" physical system exhibits no such properties. Every physical system that is under the control of a government exhibits at least the emergent property of stability thus being an example of a "complex" physical system yet governments frequently treat these systems as if they were "non-complex" physical systems in modelling them. Amongst the consequences from this governmental incompetency is the public pollicy of unnecessarily "decarbonizing: the world economy.
Terry Oldberg
Engineer/Scientist/Public Policy Researcher
Los Altos Hills, California
terry_oldberg@yahoo.com
1-650-518-6636 (mobile)
1-650-941-0533 (land line)
I received the following comment from Philippe Blankert who indicated he could not, for some reason, comment:
Electric rates in RTO regions can be higher for a few reasons, but it's not always the case. Here's a breakdown:
Potential downsides of RTOs affecting rates:
Congestion costs: RTOs manage a large area, and sometimes power lines get congested, meaning they can't deliver all the electricity generated from cheaper sources to high-demand areas. This can force those areas to rely on more expensive local generation, driving up the wholesale price (which gets passed on to consumers).
Capacity market design: Some RTOs have capacity markets where power plants are paid to be available even if not running. This can incentivize building more fossil fuel plants, locking in higher costs for consumers.
Potential upsides of RTOs that can help rates:
Resource diversity: RTOs allow states with different resources (like wind in one state and solar in another) to trade electricity, potentially lowering costs for everyone.
Competition: RTOs create a competitive market for wholesale electricity, which can drive down prices compared to non-RTO regions with limited competition.
Other factors affecting rates:
State energy policy: States set their own energy policies, which can influence the cost of generation (e.g., renewable energy mandates can increase costs initially).
Fuel costs: The price of fuels like natural gas used in power plants can significantly impact electricity costs.
Overall:
It's important to look at the specific situation in each RTO region. While congestion and capacity market design can raise rates in some cases, RTOs can also promote competition and resource diversity, potentially leading to lower costs.
Yeah, most of those arguments sound like the common renewable litany, which is all speculative and in practice has been proven not to be the case.
RTO's may very well be inefficient and this analysis may well give an insight into this. Seems a bit of caution is warranted as there are many variables at play. Some areas have a higher proportion of lower cost generation. Here in the NE a lot is spent on keeping tree away from power lines. There are many other factors to consider.
I purchased Meredith Angwin’s book recently and enjoyed reading about her insights on the grid in general and specifically about the New England ISO. One thing I took away from her book was how different the various RTOs can be. So, that inspired me to look at the rates of the NEISO states and the rates in the states under MISO. I used the data you published and included only those 8 states in MISO that were covered primarily by MISO only (MN,WI,MI,IL,IA,IN,AK,LA.) The average rate of MISO states was about 11 cents per kWh versus about 21 cents per kWh in NEISO states. So there is something going on here that has nothing to do with the RTO system. I am woefully ignorant about the energy grid so I look forward to further posts by more knowledge people such as yourself and Meredith to make some sense of this frustratingly complex energy grid we rely upon.
The Midwestern MISO states with the exception of Central and Southern Illinois have mostly retained vertical integration IN the RTO(akin to Virginia and West Virginia in PJM).
Interesting. Thanks.
Anything to do with Blue States ... take away the top sixteen Blue states in RTO areas and I get a rate of 9.92 cents / kWh. Renewable madness?
Figuring this out must be above my pay grade because seeing a pattern eludes me. It appears that prices are higher in Blue States as you say, but outside of California the highest cost states are clustered in the Northeast. Other than in Maine and Vermont, renewables don’t provide much electricity in the Northeast, so there must be another culprit. And one of the lowest cost states is Iowa, a Red State that ranks towards the top when compared to other states in terms of renewable energy production (and usage) primarily due to wind.
Vermont's generation is so tiny, it's mostly irrelevant for nationwide scale. It generates less than 44% on its load (2023 EIA data). Massachusetts gets 24% generation from Solar and has fifth highest rates. Overall New England is an energy desert and has major challenges for prolonged cold spells. Iowa can thank their Senator Grassley for the abominable Wind Production Tax Credits. Yes, Iowa has lower rates and the rest of us suckers are subsidizing them. Iowa had the highest percentage of Wind generation (59%).
I agree, Chuck Grassley doesn’t mind subsidizing technologies that benefits his constituents. Maybe we should focus less on Red or Blue and more upon Green(backs).
I think you're on to something, Warren!!
Hi Meredith, minor, but important difference. You lumped RTOs and ISOs into the same group. They are nit the same, ISOs exert much more control and their rates reflect the difference. CAISO has repeatedly tried to reach down into the distribution provider domain.
Hi Kilovar. I have not seen any studies describing different rates between ISOs and RTOs. As a matter of simplicity, I just look at Auctions vs Vertically Integrated. Do you know of some studies showing this difference? I would be grateful!
I will have to look, I just know the difference as an insider
Hi Tom. Thank you for this post!
Minor quibble. You are correct to list Texas as an RTO state (ERCOT). However, on the map, you show it as mostly non-RTO. There are non-RTO areas within Texas...mostly municipal utilities. But most of Texas is ERCOT.
Thank you so much, Meredith! I didn't see that when I grabbed the image, but I was able to fix it with a graphics program I have. Love your book by the way!
While the numbers are accurate as reported by EIA, they do not tell the whole story. What would be more insightful would be to break down the state costs by energy, T & D charges, taxes, and social programs components. One may find that the differences in total residential rate may be driven by other factors such as taxes and social programs and not just energy cost which is under ISO/RTO purview.
John, when I wrote Shorting, I was able to find a few studies that did a more detailed comparison. RTOs were still more expensive.
A more interesting question to me is why there aren't there lots of studies, maybe one or two every year or so, comparing the consumer costs in RTO and vertically-integrated areas? The studies could compare taxes, social programs, cost of imports, all sorts of things. I think that these studies (which pretty much don't exist) would answer a question that a lot of people don't want answered. I am pretty sure that such studies would show RTOs as more expensive.
With any luck, people will comment here with lots of links to such studies. That would be great for me, because I continue to work in this area! But I'm not holding my breath waiting for the list of studies.