Monday Study – Big Benefits To West For Going Regional
Western RTO Economic Impact Study; Region-Wide Analysis
July 2022 (Advanced Energy United)
This report quantifies the economic benefits1 that might accrue to 11 Western states2 from development of a broad, West-wide organized electricity market known as a Regional Transmission Organization (RTO). Energy Strategies and Peterson & Associates prepared this report at the request of the Advanced Energy Economy (AEE) to fill a research gap on the broader economic impacts that might result from the electricity cost savings and structural changes brought about by a potential RTO in the West. The analysis performed in this Western RTO Economic Impact Study, and forthcoming companion state-level economic impact result summaries, find that substantial economic benefits, including new jobs, new indirect business taxes, and increases to Gross Regional Product are likely to flow to the region if a Western RTO is established.
There are a variety of categories of benefits that might be brought about by an RTO (or other organized electricity market structure). This study considers a subset of the energy-related benefits that might occur due to the operation of an RTO in the region, specifically the operational and capacity savings. This analysis then seeks to understand how those electricity cost savings flow into the economy and create broader, non-energy related economic impacts.
This study focused on evaluating two broad categories of economic impacts that may result from an RTO:
1. The economic impacts to Western states from increased spending power for households that would occur due to electricity prices being lower under an RTO than they would be under a continuation of the status quo in Western electricity markets, and
2. The economic impacts from new or expanded business activity that may occur due to RTO development, including both:
a. The impact of lower electricity prices for businesses, incentivizing them to expand in or locate to Western states, and
b. Structural changes to the electricity market enabling new renewable energy development contracts to meet corporate clean energy demand, which is currently taking place primarily in regions with RTOs.
This analysis presents a range of potential economic impacts to the West which vary based on how sensitive firms ultimately are to electricity prices and on how much additional clean electricity generating capacity is built across the region. While the range of impacts is fairly broad, the results demonstrate that, even on the low-end, the economic benefits of an RTO to Western states are expected to be substantial.
The range of economic impacts to the 11-state region in the 2030 timeframe is illustrated below in Figure 1-1. In summary, the creation of a West-wide RTO is expected to:
• Provide between 159,000 and 657,000 permanent jobs across the region, with those jobs averaging total compensation (payroll plus benefits) of roughly $73,000 per year.
• Generate between $18.8 billion and $79.2 billion in additional Gross Regional Product per year across the 11-state region (equivalent to 0.4% to 1.6% of the region’s current, Gross Regional Product)3
• Produce incremental tax contributions ranging between $619 million and $2.4 billion per year
• Create 2,800 to 13,700 temporary construction jobs in 2030 from the development of additional clean energy resources to meet corporate demand resulting in an additional $266 million to $1.3 billion in Gross Regional Product and $16 to $50 million in taxes on a temporary basis.
The analysis finds that the Western region, and every individual Western state, could expect economic benefits from a West-wide RTO. Benefits to the economy would be driven by lower electricity prices (in comparison to a case without an RTO) for households and businesses, additional clean energy development across the region, and expansion of existing or attraction of new businesses to the West. The sooner RTO development occurs, the sooner the region can be put on the path to realizing these long-run benefits…
Conclusion And Key Findings
As discussed throughout this report, and illustrated in Figure 1-1, the West could expect significant economic benefits from a West-wide RTO in the 2030 timeframe. Benefits to the economy would be driven by:
Electricity cost savings providing higher levels of disposable income for households than they would have in a continuation of the current electricity market structures;
The potential for additional clean electricity resource development in the region to meet corporate demand; and
Expansion of existing or attraction of new businesses to the Western states.
The sooner RTO development occurs, the sooner states in the West can begin to realize these benefits. While this study present results for 2025, 2030 and 2035, these are representative years and actual RTO benefits will likely take some time to fully materialize after an RTO is stood up. Key highlights of the expected range of economic benefits for the West from the formation of a West-wide RTO are outlined below.
JOBS & LABOR INCOME
This analysis finds that a West-wide RTO could provide between 159,000 and 657,000 new, permanent jobs across the West in the 2030 timeframe.
• This translates to between $11.5 billion and $48.6 billion per year in additional total compensation which represents between about 0.3% and 1.5% of current total income across the 11-state region.
• As a result of the direct and multiplier effects of RTO formation, the average job created across the region would have total payroll and benefits of roughly $73,000 per year.
Additionally, in the 2030 timeframe, a West-wide RTO could provide between 2,800 and 13,700 temporary (construction) job-years, associated with the construction of additional renewable energy projects (modeled as wind and solar+storage).
As the result of the impacts of RTO formation, permanent, incremental tax contributions (via indirect business taxes) to the 11 states in the region are expected to range from $619 million to $2.4 billion per year in the 2030 timeframe.
• Total tax impacts are likely to be higher, but the scope and broad geography of this analysis, necessitated a simplified assessment of tax impacts which do not assess income taxes, and special allowances for energy projects, etc.
• The temporary (construction) indirect business tax contributions in the 2030 timeframe range from $16 million to $50 million per year from the development of incremental clean energy in the region in that timeframe.
GROSS REGIONAL PRODUCT (GRP)
As a result of RTO formation and the associated impacts, permanent Gross Regional Product contributions to the 11 states in the region are expected to range from $18.8 billion to over $79 billion per year in 2030.
The temporary (construction) Gross Regional Product contributions in 2030 range from $266 million to $1.3 billion per year due to the development of incremental clean electricity resources in the region that may occur due to RTO formation and operation.
The formation and operation of a West-wide RTO will require additional investments in hardware/software, office space and staff. This direct investment could theoretically occur in any Western state. Wherever the investment occurs, it will have direct and multiplier effects, representing positive economic impacts for that state.
Based on an analysis of several states where the direct investment might occur (described more in Appendix A), we anticipate the following additional benefits, which were not added to the tables and charts in this report, as they have not been assigned to one state in particular and, thus, are not included in the individual state reports:
• An additional $160-$200 million annually in increased permanent Gross State Product contributions from the RTO investment impacts (wherever that occurs).
• 1,600-2,000 new permanent jobs with total compensation between $99 million and $133 million. • New tax revenue of $6.3 million to $9.6 million annually…