Low-cost renewable energy integration causes some experts to question RTO efficacy

The integration of more low-cost renewable energy resources onto the electric grid is posing challenges to regional transmission organizations, causing some industry experts to question the efficacy of established grid operators and existing market designs.

However, other experts acknowledged the benefits RTOs and independent system operators offer some states. Much of the nation's electricity is distributed by a grid operator, though generators in much of the West and Southeast operate independently.

While RTOs may work well in some regions, state-regulated, vertically integrated utilities are optimal for states like Georgia, said Tricia Pridemore, chairman of the Georgia Public Service Commission said during a July 22 webinar hosted by the American Enterprise Institute. Utilities operating in that market structure are "best-positioned to deliver utility-scale clean energy because of the system and the framework by which they operate in," the chairman said.

RTOs introduce more bureaucracy that increases costs for ratepayers, she added.

"Vertically integrated, state-regulated structures in the Southeast mean the utilities will remain directly accountable to state regulators, such as myself, who represent all ratepayers," Pridemore said. "This stands in sharp contrast to an RTO, where the most fundamental aspects of providing energy, such as operation of the transmission system and dispatch of generation, are turned over to an entity that is not regulated by state regulators."

But the formation of RTOs and ISOs has benefitted some states and regions of the country, including Texas, said Beth Garza, a senior fellow with the R Street Institute. With an ISO, Texas was able to consolidate from 10 control areas to one with direct oversight from the Texas Public Utility Commission, she said.

"Transmission is the great enabler that allows all customers access to the lowest-cost supply," Garza said. "And having that access to the lowest-cost supply over the largest range by a transmission system that's dispatched and controlled by an independent entity, not one who has competing generation interests to protect, I think, is paramount and just required to provide those benefits to end-use consumers."

However, in some regions, including the West, the costs of an RTO may outweigh the benefits, said Raymond Gifford, managing partner of Wilkinson Barker Knauer's Denver office.

"The RTOs as we know them are failing in distinct ways, and they're yielding political outcomes that are not amenable and not acceptable to the political class," Gifford said. "The RTO regulatory model is not the solution to a decarbonized future and in fact the decarbonized future is eating the RTO model."

Federal Energy Regulatory Commission member Neil Chatterjee said that there is "no one-size-fits-all solution" for the entire nation as various markets grapple with design challenges. As the US adds more renewable energy sources to the system, policymakers also need to "think long and hard about how to make sure these conventional resources we need will survive," the Republican said.

"It's crucial that we don't put ourselves in a position where we are accidentally driving out competitive resources that are needed to maintain reliability, but I fear that's the direction we are headed," Chatterjee said. "I am concerned about the villainization of capacity markets when these clear and obvious trends seem to require us to rely on capacity markets more than ever."

'Not working perfectly'

Acknowledging that RTOs are "not working perfectly," former FERC member Nora Brownell said regulators need to rethink the role of RTOs and how they can better respond to states' needs.

Regulators will also need to redesign markets to better accommodate a changing world, the commissioner said.

"As we face this massive, massive transformation to a different generation mix, but more importantly to a distributed generation mix, when we're confronted with extremes in weather ... we need to be able to respond more efficiently," Brownell said. "So, that means changing market designs. That means changing rate designs. That means having different products and services and encouraging investments, not only in generation mixes, but in grid-enhancing technologies."