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Study Scope

Cost Ranges for the Development and Operation of a Day One Regional Transmission Organization PL04-16-000. Study Scope. What this study is Estimate of Day One RTO investment costs and annual expenses Framework for discussions about RTO development What this study is not

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Study Scope

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  1. Cost Ranges for the Development and Operation of a Day One Regional Transmission OrganizationPL04-16-000

  2. Study Scope • What this study is • Estimate of Day One RTO investment costs and annual expenses • Framework for discussions about RTO development • What this study is not • Audit of actual RTO costs • Prudence review of expenses • Analysis of the benefits of RTO formation • Many studies have shown the benefits of RTOs

  3. Study Approach • Identification of the Minimum Functions of a Day One RTO • Review of Representative Study Group • Development of Investment Costs and Annual Operating Expense Estimates • Comparisons to the Day One RTO

  4. RTO Functions by Stage

  5. Day One Functions • NERC Functions • Transmission Service Provider • Reliability Authority • Support Functions • Transmission Support • Management

  6. Transmission Service Provider • Administers the tariff • Processes transmission service requests • Maintains OASIS site • Approves/denies transmission service requests • Approves interchange transactions • Determines and posts ATC • Allocates transmission losses among participants

  7. Reliability Authority • Enforces operational reliability requirements • Monitors all reliability-related parameters within the Reliability Authority Area • Has revision authority for transmission and generation plans • Develops and enforces interconnection reliability operating limits • Approves/denies bilateral schedules • Directs emergency procedures

  8. Support Functions • Transmission Support • Settlements and billing • Customer service • Management • Human Resources • Finance • Administrative support • Building operations

  9. Representative Study Group • PJM Interconnection • Midwest Independent Transmission System Operator • Electric Reliability Council of Texas • Southwest Power Pool

  10. Investment Cost Ranges

  11. Annual Operating Expense Ranges

  12. Annual Operating Expenses per MWh

  13. Average Retail Bill Impact: Nationwide(% of Total $/kWh)

  14. Average Retail Bill Impact: Desert Southwest(% of Total $/kWh)

  15. Study Findings • The direct impact of a new Day One RTO should be less than one-half of one percent of a retail customer’s bill. • Day One RTOs have required investment of $38 million to $117 million, with annual revenue requirements of $35 million to $78 million. • A new RTO could require $50 to $70 million in investment costs and $50 to $70 million for annual operating expenses.

  16. IT Cost Increases • Lack of a clear business plan and project management • Over-customization of software • Incomplete system design • Excessive changes during development • Implementation delays

  17. Study Findings • Cost overruns can result from changing plans mid-course, poor project management and extensive delays. • Many of the costs are for reliability-related functions. • Cost data are not accounted for in a standardized manner.

  18. Potential RTO Benefits • Many studies have shown the benefits of RTOs—lower costs by 0.5% to 2%. • Few regional studies include the benefits from competition. • Elimination of rate pancaking • Regional planning and more efficient investment • Lower generation costs through better use of existing assets • Technological innovation • RTOs are likely to create greater benefits than have been shown.

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