RTO Expenses and Investments in Property, Plant, and Equipment Varied Considerably

From 2002 to 2006, RTO expenses totaled $4.8 billion when adjusted for  inflation and varied considerably depending on the size of the RTO and  functions it carried out. RTOs also  made major investments in property, plant, and equipment—$1.6 billion  when adjusted for inflation as of December 2006. Furthermore, though RTO budgets offer one tool FERC could use to  revisit whether rates remain just and reasonable between rate  proceedings, the extent to which FERC reviews proposed expense  information in RTO budgets varies. 1s for accuracy or completeness. FERC officials told us it is the RTOs’  responsibility to ensure that the FERC Form No. Experts, Industry Participants, and FERC Lack Consensus on the Benefits of RTOs

Experts, industry participants, and FERC lack consensus about whether  RTOs have provided net benefits to consumers. Many key experts and  industry participants agree that RTOs can provide certain benefits, such as  more efficient management of the transmission grid and improved access  by independent generators. A state-by-state analysis of electricity prices reveals differences between  RTO and non-RTO regions that have likely led to concerns about the  impact of RTO markets on electricity prices. FERC Believes RTOs Have Produced Benefits but Has Not Conducted a Study or Developed a Comprehensive Set of Publicly Available Measures for Tracking RTO Performance

FERC officials believe that RTOs have resulted in benefits to the economy,  such as new efficiencies in operating the regional transmission grid;  however, it has not conducted an empirical analysis or developed a  comprehensive set of performance measures to analyze these benefits. We  acknowledge that FERC’s review of RTO decisions that affect electricity  prices and consideration of stakeholder comments and complaints  sometimes results in new rules designed to improve the ability of RTOs to  deliver benefits to their regions. To provide a foundation for FERC to evaluate the effectiveness of its  decision to encourage the creation of RTOs and help Congress, industry  stakeholders, and the public understand RTO performance and net  benefits, we recommend the Chairman of FERC take the following two  actions:    work with RTOs, stakeholders, and other experts to develop  standardized measures that track the performance of RTO operations  and markets and  report the performance results to Congress and the public annually,  while also providing interpretation of (1) what the measures and  reported performance communicate about the benefits of RTOs and,  where appropriate, (2) changes that need to be made to address any  performance concerns. Appendix I: Objectives, Scope, and Methodology

At the request of the Chairman and Ranking Member of the Senate  Committee on Homeland Security and Governmental Affairs, we reviewed  (1) Regional Transmission Organizations’ (RTO) key expenses and  investments in property, plant, and equipment; (2) how RTOs and the  Federal Energy Regulatory Commission (FERC) review RTO expenses and  decisions that may affect electricity prices; and (3) the extent to which  there is consensus about what benefits RTOs have provided. To determine how FERC and RTOs review RTO expenses and decisions  and discuss other aspects of RTO costs and benefits, we collected general  information, interviewed representatives from the six RTOs, and spoke to  the ISO/RTO Council about how FERC and the RTOs review proposed  budget expenses and consider how RTO decisions affect electricity prices. Found no reliable or  convincing evidence that  consumers are better off  as a result of  restructuring the U.S.  electric power industry.
Why GAO Did This Study

In 1999, as a part of federal efforts to restructure the electricity industry, the Federal Energy Regulatory Commission (FERC) began encouraging the voluntary formation of Regional Transmission Organizations (RTO)--independent entities to manage regional networks of electric transmission lines. FERC oversees six RTOs that cover part or all of 35 states and D.C. and serve over half of U.S. electricity demand. As electricity prices increase, stakeholders-- organizations and individuals with financial and regulatory interest in the electricity industry--have voiced concerns about RTO benefits and how RTO expenses and decisions influence electricity prices. GAO was asked to review (1) RTO expenses and key investments in property, plant, and equipment from 2002 to 2006, the most current data available; (2) how RTOs and FERC review RTO expenses and decisions that may affect electricity prices; and (3) the extent to which there is consensus about RTO benefits. To do so, GAO reviewed documentation and data and spoke with FERC officials and experts.

What GAO Found

RTO expenses and investments in property, plant, and equipment vary, depending on the size of the RTO and its functions. Expenses for the six RTOs FERC oversees totaled $4.8 billion from 2002 to 2006, and property, plant, and equipment investments totaled $1.6 billion as of December 2006. RTOs and FERC rely on stakeholder participation to identify and resolve concerns about RTO expenses and decisions that affect electricity prices, such as decisions about reliability and whether to develop markets for electricity and other services. The stakeholders GAO spoke with in two RTO regions value the opportunity for input but have concerns about the resources and information required to participate. Moreover, although regular review of RTO budgets could help FERC with its responsibility to ensure RTO rates remain just and reasonable or determine if a new rate proceeding is needed, FERC's review of RTO budgets varies. Furthermore, while FERC requires RTOs to report actual expenses annually, it does not regularly review this information for accuracy or reasonableness and is at risk of using and providing to the public inaccurate and incomplete information. FERC officials, industry participants, and experts lack consensus on whether RTOs have brought benefits to their regions. Many agree that RTOs have improved the management of the transmission grid and improved generator access to it; however, there is no consensus about whether RTO markets provide benefits to consumers or how they have influenced consumer electricity prices. FERC officials believe RTOs have resulted in benefits; however, FERC has not conducted an empirical analysis of RTO performance or developed a comprehensive set of publicly available, standardized measures to evaluate such performance. Without such measures, FERC will remain unable to demonstrate the extent to which RTOs provide consumers and others with benefits--information that could aid FERC in its evaluation of its decision to encourage the creation of RTOs and help address divisions about which benefits RTOs have provided.