RTO Reckoning: White Paper Examines How Industry and Policy Trends Undermine RTOs, Cautions Against One-Size-Fits-All Mandates

Two leading electricity policy experts today released a white paper that analyzes the mounting challenges the nation's regional transmission organizations face in a time of rapid grid transformation and cautions against relying solely on RTOs as a mechanism to achieve energy and climate goals.

"Lawmakers and regulators need to candidly acknowledge the industry trends and policy mandates that are working at cross-purposes with the nation's RTOs," said co-author Tony Clark, a former member of the Federal Energy Regulatory Commission and now a senior adviser at Wilkinson Barker Knauer LLP. "This white paper examines whether the RTO model is well suited to handle demands that undermine the RTO paradigm itself. We conclude that, increasingly, it is not," Clark said.

"The timing of this white paper is propitious given pending federal legislation that would mandate RTO membership nationwide," said co-author Vincent Duane, a principal at Copper Monarch and a former senior vice president with PJM Interconnection. "If political leaders fail to come to terms with the cracks in the foundations in the RTOs, simply expanding them nationwide will not just be a policy failure, it risks climate progress and pro-consumer outcomes."

According to the white paper, RTOs are struggling under the weight of electricity industry changes that have occurred since the RTOs were designed more than two decades ago. Especially troublesome are issues related to price formation which, under the RTO model, are misaligned with many of the public policies that seek to advance grid decarbonization.

"An RTO characterized by degraded price signals, supply that doesn't respond to price, extensive sources of revenue from outside the market, and largely unavoidable socialized charges isn't much of a "market" at all," Clark said.

"These trends are chipping away at the foundation of the RTO model itself and call into question the commodification of electricity which is the principle underpinning how RTO markets buy, sell and deliver electricity. It is hard to see how minor tweaks will fix it and sweeping it under the rug isn't a viable long-term option," added Duane.

"It strikes us as a bad, perhaps even dangerous idea, to rule out all other regimes (both existing and potential new or hybrid models) to instead insist on pursuing all efforts to decarbonize the electricity grid through a universally imposed RTO model," the white paper concluded.