In North America, an ISO is an Independent System Operator and an RTO is a Regional Transmission Organization. The two are similar with an RTO being more clearly defined and born out of the concept of electrical grid reliability. The delineation between an ISO and an RTO is subtle to some and quite specific to others as the similarities in the table below illustrate:
| ISO | RTO |
|---|---|
| "...an organization formed at the direction or recommendation of the [FERC]..." | "...designated by the [FERC] to direct operation of the regional electric transmission grid in its area..." |
| "...a neutral party responsible for the management and control of the electric transmission grid in a state or region..." | "...coordinates, controls and monitors an electricity transmission grid that is larger with much higher voltages than the typical power company's distribution grid..." |
| "...operates an electric-transmission system that it does not own..." | "...coordinates power generation and transmission within an integrated regional market..." |
| "...an independent, Federally regulated entity..." | "...an independent governing body..." |
| "...ensure[s] the safety and reliability of the electric system..." | "...[responsible] for electric transmission grid operations, short-term electric reliability and transmission services within a multi-state region..." |
| "...for the purpose of providing open access to retail and wholesale markets for supply..." | "...serve as the independent operator of the regional electric market..." |
In short, an ISO operates a region's electricity grid, administers the region's wholesale electricity markets, and provides reliability planning for the region's bulk electricity system. Today's RTO's do the same thing with an added component of greater responsibility for the transmission network as established by the FERC.
Contents |
| "Independent System Operators grew out of Orders Nos. 888/889 where the Commission suggested the concept of an Independent System Operator as one way for existing tight power pools to satisfy the requirement of providing non-discriminatory access to transmission. Subsequently, in Order No. 2000, the Commission encouraged the voluntary formation of Regional Transmission Organizations to administer the transmission grid on a regional basis throughout North America (including Canada). Order No. 2000 delineated twelve characteristics and functions that an entity must satisfy in order to become a Regional Transmission Organization."[1] |
In April, 1996, the Federal Energy Regulatory Commission (FERC) issued two orders that changed the landscape of how electricity is generated, transmitted and distributed throughout the North America. Prior to these rulings generated power, and the subsequent energy provided to customers by local service providers, was owned and controlled by single entities who often owned the entire generation, transmission and distribution assets. Because these companies controlled the retail delivery of the energy from generation through their own power lines, consumers had little to no choice regarding whose electricity they were buying.
In economic terms, this structure constituted an impediment for new providers who would want to generate power, move energy or provide retail electricity to individual consumers.
Order No. 888[2] addressed "Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities." and Order No. 889[3] added and amended existing rules "...establishing and governing an Open Access Same-time Information System (OASIS) (formerly real-time information networks) and prescribing standards of conduct."
Order No. 888, is often cited as the "Deregulation" of the electric industry; deregulation, however, is not an accurate term. In actuality, the electricity industry is still regulated (depending on the region) by a series of federal, state and local agencies and various public commissions. Order No. 888 is substantial in scope. Relative to this article, however, it defined two key elements:
| "The legal and policy cornerstone of these rules is to remedy undue discrimination in access to the monopoly owned transmission wires that control whether and to whom electricity can be transported in interstate commerce. A second critical aspect of the rules is to address recovery of the transition costs of moving from a monopoly-regulated regime to one in which all sellers can compete on a fair basis and in which electricity is more competitively priced."[4] |
In addressing #1 above, Order No. 888 defined the fundamental purpose of an ISO to “…operate the transmission systems of public utilities in a manner that is independent of any business interest in sales or purchases of electric power by those utilities.”[5] The order, however, did not mandate or require the establishment of ISOs. Rather, in an attempt to comply with the FERC’s order, groups of participants (or “Power Pools” composed of generators, transmission providers and utilities) partnered, and proposed to the FERC, for the right to establish designs of independent system operations. Through negotiation, collaboration and legal challenges, the first ISOs to emerge included California ISO, PJM Interconnection, New York ISO and New England ISO.[5] Each proposed a slightly different market design according to their collaborative results. In order to facilitate competitive wholesale markets, Order No. 888 specified the unbundling of a utility’s operations separating generation and transmission and distribution.
| "… all public utilities that own, operate or control interstate transmission facilities to offer network and point-to- point transmission services (and ancillary services) to all eligible buyers and sellers in wholesale bulk power markets, and to take transmission service for their own uses under the same rates, terms and conditions offered to others. In other words, it requires non-discriminatory (comparable) treatment for all eligible users of the monopolists' transmission facilities. The non-discriminatory services required by Order No. 888, known as open access services, are reflected in a pro forma open access tariff contained in the Rule. The Rule also requires functional separation of the utilities' transmission and power marketing functions (also referred to as functional unbundling) and the adoption of an electric transmission system information network."[5] |
In addressing #2 above, the original order (and subsequent clarification by the FERC) allows utilities, under certain defined circumstances, to seek extra-contractual recovery of stranded costs. The FERC continues to receive rehearing petitions regarding stranded cost recovery as it has clearly placed the importance on remedying what it terms as “undue discrimination” at the forefront.[5]
It is important to note that Order No. 888 was not met without objection among the public, academics and industry participants. Requests for rehearing and/or clarification were filed by 137 entities after the order’s issuance. The majority agreed with the FERC’s assertion for the need to harness the benefits of competitive electricity markets.[5]
Order No. 889, amended rules establishing and governing the Open Access Same-time Information System (OASIS) (formerly real-time information networks) and prescribed standards of conduct for its use and access. Subsequent orders provided clarifications, standards and protocols.[3]
| "Under this final rule, each public utility (or its agent) that owns, controls, or operates facilities used for the transmission of electric energy in interstate commerce will be required to create or participate in an OASIS that will provide open access transmission customers and potential open access transmission customers with information, provided by electronic means, about available transmission capacity, prices, and other information that will enable them to obtain open access non-discriminatory transmission service. This final rule requires (1) each public utility subject to the rule to implement standards of conduct to functionally separate transmission and wholesale power merchant functions and (2) the creation of a basic OASIS system."[6] |
Where as Order No. 888 provided for an entity (an ISO) to facilitate open access, it was not written with the intent to establish one. FERC Order No. 2000 was:
| "The Federal Energy Regulatory Commission (Commission) is amending its regulations under the Federal Power Act (FPA) to advance the formation of Regional Transmission Organizations (RTOs). The regulations require that each public utility that owns, operates, or controls facilities for the transmission of electric energy in interstate commerce make certain filings with respect to forming and participating in an RTO. The Commission also codifies minimum characteristics and functions that a transmission entity must satisfy in order to be considered an RTO."[7] |
Issued by the FERC on December 29, 1999, Order No. 2000 codified what it means to be an RTO including its minimum characteristics, functions and ratemaking policy. The order also stated its commitment toward open architecture with a stated goal that an RTO "...be designed so that they can evolve over time."[7] The order still, however, does not mandate that a new entity called an RTO be created, nor does it mandate that an entity call itself an RTO to comply with the FREC's order.
| "In the Final Rule, we noted that the characteristics and functions could be satisfied by different organizational forms, such as ISOs, transcos, combinations of the two, or even new organizational forms not yet discussed in the industry or proposed to the Commission. Likewise, the Commission did not propose a "cookie cutter" organizational format for regional transmission institutions or the establishment of fixed or specific regional boundaries"[8] |
An 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, but sometimes encompassing multiple states.
| "The PJM, New England and New York ISOs were established on the platform of existing tight power pools. It appears that the principal motivation for creating ISOs in these situations was the Order No. 888 requirement that there be a single systemwide transmission tariff for tight pools. In contrast, the establishment of the California ISO and the ERCOT ISO was the direct result of mandates by state governments. The Midwest ISO, which is not yet operational, is unique. It was neither required by government nor based on an existing institution. Two states in the region subsequently required utilities in their states to participate in either a Commission-approved ISO (Illinois and Wisconsin), or sell their transmission assets to an independent transmission company that would operate under a regional ISO (Wisconsin)."[7] |
Similar to an RTO, the primary difference being that ISOs either do not meet the minimum requirements specified by FERC to hold the designation of RTO or that the ISO has not petitioned FERC for the status.
Electric utilities that are located within the United States and engage in interstate commerce fall under FERC authority. Not all utilities are members of ISOs. All utilities and ISOs, however, are responsible to meet the compliance of a larger organization called the North American Electric Reliability Corporation (NERC) which 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.
Within the United States one ISO, and its participating utilities, does not fall under FERC authority: The Electric Reliability Council of Texas (ERCOT). ERCOT does fall under the authority of NERC and operates a reliability function, separate from its market function, in order to comply with NERC requirements.
ISOs act as a marketplace operator in wholesale power, resulting from FERC order No. 888. Most are set up as nonprofit corporations using governance models approved by FERC and/or regional or local commissions.
There are regions of the United States where ISOs do not exist and, subsequently, the utilities do not engage in wholesale power markets. The Pacific Northwest, and states east of California and west of the Dakotas, Nebraska, Kansas and Texas largely do not participate. The majority of Southeastern states also do not participate in wholesale markets. While these regions must conform to open access as mandated by FERC, the power exchanges between utilities is mostly facilitated through bilateral contracts and power purchase agreements
There are currently 6 ISOs within North America:[1]
An RTO is an organization formed at the approval of the Federal Energy Regulatory Commission (FERC). In the areas where an RTO is established, it coordinates, controls and monitors the operation of the electrical power system, usually within a single US State, but sometimes encompassing multiple states. The official definition for an RTO: "An entity that is independent from all generation and power marketing interests and has exclusive responsibility for grid operations, short-term reliability, and transmission service within a region."[9]
The designation of an RTO is largely one of scope. In addition, an organization wanting to achieve RTO status must petition the FERC for approval and meet 4 minimum characteristics and 7 minimum functions:
There are currently 4 RTOs within North America:[1]
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