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Electricity Restructuring: FERC Could Take Additional Steps to Analyze Regional Transmission Organizations' Benefits and Performance

GAO-08-987 Published: Sep 22, 2008. Publicly Released: Sep 26, 2008.
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Highlights

In 1999, as a part of federal efforts to restructure the electricity industry, the Federal Energy Regulatory Commission (FERC) began encouraging the voluntary formation of Regional Transmission Organizations (RTO)--independent entities to manage regional networks of electric transmission lines. FERC oversees six RTOs that cover part or all of 35 states and D.C. and serve over half of U.S. electricity demand. As electricity prices increase, stakeholders-- organizations and individuals with financial and regulatory interest in the electricity industry--have voiced concerns about RTO benefits and how RTO expenses and decisions influence electricity prices. GAO was asked to review (1) RTO expenses and key investments in property, plant, and equipment from 2002 to 2006, the most current data available; (2) how RTOs and FERC review RTO expenses and decisions that may affect electricity prices; and (3) the extent to which there is consensus about RTO benefits. To do so, GAO reviewed documentation and data and spoke with FERC officials and experts.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Energy Regulatory Commission To help ensure that FERC, industry participants, and the public have adequate information to inform their assessment of whether rates to recover RTO expenses are just and reasonable, the Chairman of FERC should develop a consistent approach for regularly reviewing expense information contained in RTO budgets.
Closed – Implemented
In 2010, FERC engaged in a collaborative process with the RTOs and industry stakeholders to identify metrics to track the performance of RTO operations and markets. In response to our recommendation, FERC identified metrics related to RTO expenses; for example, actual non-capital expenses as a percentage of approved RTO budgets and total administrative charges per megawatt hour of load served. According to FERC staff, this information will be evaluated to measure how effectively RTOs keep costs within budgeted levels and whether the growth rate of RTO administrative costs is commensurate with the growth of system load.
Federal Energy Regulatory Commission To help ensure that FERC, industry participants, and the public have adequate information to inform their assessment of whether rates to recover RTO expenses are just and reasonable, the Chairman of FERC should routinely review and assess the accuracy, completeness, and reasonableness of the financial information RTOs report to FERC in their Form No. 1 filings.
Closed – Implemented
FERC took initial steps to begin audits of ISOs and Regional Transmission Organizations (RTOs). FERC continues to implement this GAO recommendation in the audit context. FERC has completed the audits of the Midwest Independent System Operator, Independent System Operator (ISO) New England, Inc, Southwest Power Pool, New York Independent System Operator, and PJM Interconnection, L.L.C. On November 10, 2010, FERC commenced the audit of the California Independent System Operator.
Federal Energy Regulatory Commission To provide a foundation for FERC to evaluate the effectiveness of its decision to encourage the creation of RTOs and help Congress, industry stakeholders, and the public understand RTO performance and net benefits, the Chairman of FERC should work with RTOs, stakeholders, and other experts to develop standardized measures that track the performance of RTO operations and markets.
Closed – Implemented
To address our recommendation, in October 2010, FERC staff issued a report that contains various metrics related to Regional Transmission Organizations' (RTO) performance. As discussed in this report, FERC's process to develop these metrics incorporated RTO and stakeholder perspectives gathered through outreach meetings and written public comments. Specifically, FERC made a request for broad public participation by opening a docket to solicit comments on whether the proposed performance metrics will effectively track the performance of RTO operations and markets. According to the report, the Commission also plans to take additional future steps, including establishing common metrics between RTO and non-RTO regions, monitoring implementation, evaluating performance, and seeking changes, as needed.
Federal Energy Regulatory Commission To provide a foundation for FERC to evaluate the effectiveness of its decision to encourage the creation of RTOs and help Congress, industry stakeholders, and the public understand RTO performance and net benefits, the Chairman of FERC should report the performance results to Congress and the public annually, while also providing interpretation of (1) what the measures and reported performance communicate about the benefits of RTOs and, where appropriate, (2) changes that need to be made to address any performance concerns.
Closed – Implemented
In April 2011, the Federal Energy Regulatory Commission issued a report to Congress that provided performance metrics for the Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs), specifically citing that the report was submitted in response to the recommendations provided in GAO-08-987, and committed to submit further reports annually. According to the Chairman's letter to Congress, commission Staff has led an 18-month voluntary and collaborative process with ISOs, RTOs, transmission customers, market participants and other stakeholders and interested experts to develop metrics that track the performance of ISO/RTO operations and markets in delivering benefits to consumers for those ISO/RTOs under the jurisdiction of the FERC. Each ISO or RTO submitted performance metrics reports, which were attached in the Appendices to this report. These reports, that represent the first step in a multi-year evaluation of performance for utilities under the jurisdiction of the FERC, provide a wealth of information on the ISO/RTO markets and operations over a five-year period (2005-2009) for 57 performance measures. As outlined in FERC's FY 2009-2014 Strategic Plan, next steps in this evaluation include development of performance metrics in non-RTO regions in fiscal year 2011 followed by development of common metrics for both ISOs/RTOs and non-RTO regions, thereby allowing for comparisons across all electric regions and markets and further evaluation of the performance results in subsequent fiscal years.

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Topics

Data integrityElectric energyElectric power generationElectric power transmissionElectric utilitiesElectricity restructuringEnergy costsEvaluation criteriaEvaluation methodsFederal regulationsInformation managementInvestmentsMission critical informationPerformance managementPerformance measuresPrices and pricingRegulatory agenciesReporting requirementsRisk managementStandardsBenefit-cost tracking