Generation Cost Savings From Day 1 and Day 2 RTO Market Designs – Technical Appendix
Prepared for COMPETE by The Brattle Group, Inc.
Our approach to measuring RTO efficiency benefits involves the statistical estimation of the generation cost savings and productive efficiency gains that are collectively achieved by plants operating within a specified geographic area after an RTO has formed, and after that RTO has changed its design from a Day 1 to a Day 2 market. If the elimination of transmission rate pancaking, improvement in electricity trading, and better use of transmission facilities associated with a Day 1 RTO causes more efficient plants to expand their output and less efficient plants to reduce their output, then the cost of producing a fixed amount of power within a given region should fall after that region becomes a Day 1 RTO. Additionally, if a specified RTO moves from a Day 1 design to a Day 2 design, where there is centralized unit commitment, least-cost dispatch, and transmission usage (along with its reliance upon day-ahead and real-time energy trading markets), then there is the potential for further reductions in electric generation costs. Using established statistical techniques, we examine whether these cost reductions have occurred, and the extent to which they have occurred.
