Economic Analysis of Establishing Regional Transmission Organization and Standard Market Design in the Southeast

With the issue of its Notice of Proposed Rulemaking on Standard Market Design (SMD NOPR) in July 2002, the U.S. Federal Energy Regulatory Commission (FERC) took a major step to ensure consistency in wholesale electricity markets. The SMD NOPR contains the Commission's most definitive guidelines regarding its vision of future competitive wholesale electric markets, their structure, and scope. Regional transmission organizations (RTOs) are at the heart of the order-providing the structure and institutions to support wholesale electricity trade and the management of the nation's transmission grid. Locational marginal pricing (LMP) and congestion revenue rights (CRRs) will be used to manage the operation of the transmission grid. As the geographics of these RTOs will expand across many states and one or more independent system operators (ISOs), the state regulators and ISOs, affected by FERC orders, are particularly interested in the assessment of economic impact in their states and ISO market areas, if these orders were adopted. While one can easily conceptualize the steps required to characterize the economic impact of implementing RTOs and SMD, the modeling and analytical methodology is extremely complex and requires that numerous "reasonable assumptions" be made to approximate the operations of the electric system. Results from a case study are used to illustrate the impact of key assumptions and the inherent imprecision in this type of analysis. These types of issues, modeling, and analytical considerations are relevant for evaluating the impact of changing electricity market structures throughout the world