PJM Interconnection is the regional transmission organization (RTO) that administers the wholesale electricity market supplying electricity to Maryland, Washington, D.C., and 12 other nearby states. PJM is the largest RTO, serving over 50 million people.
Several years ago, PJM developed an expensive plan for adding massive new high-voltage power lines to the regional grid. All rate-payers under PJM — regardless of which state they live in — will be forced to pay a transmission tax to cover the multi-billion-dollar cost. PJM says that its own engineering studies show the new spending is needed to avoid “reliability problems” in the future and warns darkly of blackouts. Whether state officials should go along with PJM’s plans — Are they wasteful or necessary? — depends in large part on whether the public can trust PJM.
Concern about PJM’s credibility has now reached the highest levels of the federal government. In a recent report, the U.S. Government Accountability Office — the audit arm of Congress — raised questions about PJM and the other RTOs created by the Federal Energy Regulatory Commission during the decades-long effort to restructure North America’s electrical system. (About half the states now use administered markets for wholesale power sales.)
Responding to a request from Congress, GAO reported last fall on the performance of RTOs: Electricity Restructuring – FERC Could Take Additional Steps to Analyze Regional Transmission Organizations’ Benefits and Performance (GAO-08-987). The title is GAO’s polite way of saying that nobody is minding the store.
Among GAO’s key findings are the following.
RTO decision-making affecting prices is heavily influenced by advice from well-heeled insiders — stakeholder businesses with enough professional staff to go to cover multiple meetings and review mountains of documents:
“one RTO told us over 600 meetings were open to stakeholders in 2007, and some stakeholders noted that participating in so many meetings could require substantial stakeholder staff and other resources.” [GAO, Page 6}
FERC depends on complaints filed by stakeholders to supervise the RTOs. Complainants carry the burden of proof if they think RTO decisions violate the federal requirement of “just and reasonable.” Because it is resource-intensive to monitor RTOs like PJM and also expensive to file a complaint and provide proof, it’s reasonable to ask whether the public interest is being protected.
GAO reported that “one state regulator noted that the data needed to show that expenses are not just and reasonable is typically proprietary and that such complaints are difficult to win, since the burden of proof is high.” [GAO, Page 42.]
GAO also found that FERC has failed to evaluate RTO performance.
“…FERC has not conducted an empirical analysis of whether RTOs achieved the benefits expected of them or developed a comprehensive set of publicly available, standardized measures to help evaluate such performance.” [GAO, Page 7-8.]
The former chairman of FERC, Joseph Kelliher, acknowledged some of GAO’s concerns but was emphatic on the question of “public trust.” In his letter commenting on the report, Kelliher asserted:
“There is no public policy reason to hold RTOs to a position of greater public trust with regard to planning and operating large regional transmission systems.” [GAO, Page 88.]
(Kelliher has recently started to new job at FPL Group, a major power company regulated by FERC.)
In other words, although they are creatures of FERC and federal law, the RTOs are not public agencies and should not be subject to more disclosure or expected to be more concerned for the public interest than investor-owned utilities are, according to Bush-appointee Kelliher.
Events of the past year have demonstrated the “benefits” of light regulation in the highly complex world of finance. Electricity markets are also highly complex and lucrative for insiders…Is it in the best interests of rate-payers to continue to rely on light regulation in power markets?
Decisions made by RTOs not only affect rate-payers’ pocketbooks, they influence the quality of the air we breathe and the water we drink, mainly through pollution from coal-fired power plants.
If the questions raised by GAO have any value, then responsible officials in Maryland and other states ought to be skeptical of PJM’s claims about reliability and the need for a new transmission tax.