Academic journal article Energy Law Journal

New Metrics for Measuring the Success of a Non-Profit Rto

Academic journal article Energy Law Journal

New Metrics for Measuring the Success of a Non-Profit Rto

Article excerpt

Synopsis:

This article examines metrics used to evaluate whether not-for-profit Regional Transmission Organizations (RTOs) are successful, including the popularly-discussed metric of evaluating whether the economic benefits of RTOs exceed the costs of establishing and operating RTOs. The article analyzes the inherent weaknesses in any economic cost/benefit determination of an RTO's degree of success and proposes that new metrics be developed that are analogous to the metrics that are used to evaluate the success of other entities. The article focuses on measuring the success of non-profit entities, but also discusses the work of experts such as Peter Drucker who have analyzed methods of measuring the success of for-profit organizations. A metric of evaluating the degree to which an RTO complies with its Federal Energy Regulatory Commission (FERC or Commission) approved tariff appears to be one necessary component of evaluating RTO success; however, it does not appear to be a sufficient metric. The article concludes that RTOs should be measured by the degree to which an RTO complies with its tariff and also by whether it achieves the outcomes established by its board of directors, rather than comparing its economic costs to its perceived economic benefits.

I. INTRODUCTION

In the United States, there is a widespread belief that one can measure the success of an organization based upon its profitability. Companies that return profits to their shareholders and consistently raise their stock prices are deemed to be successful American corporations. They are considered successful primarily because of a "cost/benefit" analysis: the benefits that they are able to provide to their shareholders exceed their costs of production. Companies that are not profitable are deemed by many to be unsuccessful and they often cease to exist, either through acquisition by a successful company or through bankruptcy proceedings.2

Although this simplistic approach to measuring an organization's success may be appropriate for Wall Street, it may not be appropriate for Main Street because the analysis ignores externalities associated with an organization's profitability, such as environmental impacts. Is a profitable corporation "successful" if it produces massive amounts of greenhouse gases that may threaten the environment for future generations? In the absence of legislation limiting such emissions, the external impacts of such a corporation's activities are incapable of being measured by a simplistic profitability or "cost/benefit" analysis.

Another weakness of an economic "cost/benefit" analysis to measure the success of an entity is that the analysis is poorly suited to evaluate a not-for-profit entity which has no stock price to monitor and no equity shareholders who can receive profits through dividends. RTOs, for example, were organized and approved by the FERC3 to operate and manage interstate transmission independently over a large geographic region on a non-discriminatory basis and to facilitate the creation of transparent, competitive wholesale energy markets.5 RTOs recover their costs from market participants that engage in the transmission and sales for resale of electricity within their region,6 but RTOs were not designed by the FERC to earn a profit from such activities and in fact, they have no equity shareholders who could receive any generated profits.

Independent System Operators (ISOs) were first proposed by the FERC in Order No. 888.7 The FERC encouraged the formation of RTOs in Order No. 2000.8 The United States Supreme Court noted in its decision affirming the opinion of the Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court of Appeals) upholding Order No. 888, the precursor to Order No. 2000, that the Commission properly grounded the issuance of Order No. 888 on the "FERC's power to remedy unduly discriminatory practices" under § 205 and § 206 of the Federal Power Act (FPA). …

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