Independent System Operator

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An Independent System Operator (ISO) is an organization formed at the direction or recommendation of the Federal Energy Regulatory Commission (FERC). In the areas where an ISO is established, it coordinates, controls and monitors the operation of the electrical power system, usually within a single US State.

Similar to an ISO is a Regional Transmission Operator (RTO), the primary difference being that generally an RTO coordinates, controls and monitors the operation of the electric power transmission system over a wider area that crosses state borders.

Only electric utilities that are located within the United States fall under FERC authority, but a larger organization called the North American Electric Reliability Corporation (NERC) overlays the entire FERC footprint and also includes a Mexican utility and several Canadian utilities. As such, international reciprocity is commonplace, and rules or recommendations introduced by FERC often are voluntarily accepted by NERC members outside of FERC’s jurisdiction. Therefore, one Canadian Province is a member of a US-based RTO, while two others function as an Electric System Operator (ESO), an organization essentially equal to a US-based ISO.

Some ISO’s and RTO’s also act as a marketplace in wholesale power, especially since the electricity market deregulation of the late 1990s. Most are set up as nonprofit corporations using governance models developed by FERC.

FERC Orders 888 and 889 defined how Independent Power Producers (IPP’s) and power marketers would be allowed fair access to transmission systems, and mandated the implementation of the Open Access Same-Time Information System (OASIS) to facilitate the fair handling of transactions between electric power transmission suppliers and their customers.

There are currently seven ISO's operating in North America:

Alberta Electric System Operator (AESO)
California ISO (CAISO)
Electric Reliability Council of Texas (ERCOT), also a Regional Reliability Council
Florida Reliability Coordinating Council (FRCC), also a Regional Reliability Council
Independent Electricity System Operator (IESO), operates the Ontario Hydro system
Midwest ISO (MISO)
New York ISO (NYISO)

There are currently four RTO's operating in North America:

Midwest Independent Transmission System Operator (MISO)
ISO New England (ISONE), an RTO despite the ISO in its name
PJM Interconnection (PJM)
Southwest Power Pool (SPP), also a Regional Reliability Council

Among the U.S. market operators, SPP is the newest to running electricity markets, with their first competitive market operations beginning in 2006. The northeastern market operators PJM, ISO-NE, and NYISO all have very similar market rules.

In the wake of the rolling blackouts and market manipulation in 2000, California instituted some market rules which deviate from other market operators. For instance, all other market operators have energy price caps of $1000/MWh, but CAISO instituted a "soft" price cap of $250/MWh in year 2000, updated to $400/MWh in 2006. A soft cap means that a generator can bid and receive a higher price but the market clearing price paid to other generators will remain at the soft cap.

ERCOT is unique among the market operators because it operates the entire Texas Interconnection and is somewhat electrically isolated from the rest of the United States, being connected to the Eastern Interconnection with only two high voltage direct current (DC) transmission lines.