ISO RTO
Encyclopedia
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:
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.
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 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 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."
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.” 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. 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.
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.
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.
(formerly real-time information networks) and prescribed standards of conduct for its use and access. Subsequent orders provided clarifications, standards and protocols.
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." 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 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.
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 corporation
s 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 agreement
s
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:
| 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.
Background
| "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." |
FERC Orders 888 & 889
In April, 1996, the Federal Energy Regulatory Commission (FERC)Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission is the United States federal agency with jurisdiction over interstate electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates...
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 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 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
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:- An acknowledgment that barriers to competitive wholesale markets may exist and those barriers must be removed
- Permit utilities to recover stranded costs associated with providing open access to transmission
"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."
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.” 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. 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." |
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.
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.
Order No. 889
Order No. 889, amended rules establishing and governing the Open Access Same-time Information System (OASIS)Open Access Same-Time Information System
The Open Access Same-Time Information System , is an Internet-based system for obtaining services related to electric power transmission in North America. It is the primary means by which high-voltage transmission lines are reserved for moving wholesale quantities of electricity...
(formerly real-time information networks) and prescribed standards of conduct for its use and access. Subsequent orders provided clarifications, standards and protocols.
| "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." |
FERC Order 2000
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." |
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." 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" |
Independent System Operators (ISOs)
An ISO is an organization formed at the direction or recommendation of the Federal Energy Regulatory Commission (FERC)Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission is the United States federal agency with jurisdiction over interstate electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates...
. In the areas where an ISO is established, it coordinates, controls and monitors the operation of the electrical power
Electric power transmission
Electric-power transmission is the bulk transfer of electrical energy, from generating power plants to Electrical substations located near demand centers...
system, usually within a single US
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
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)." |
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
Marketplace
A marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed.-Marketplaces and street markets:A...
operator in wholesale
Wholesale
Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services...
power, resulting from FERC order No. 888. Most are set up as nonprofit corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s 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 agreement
Power Purchase Agreement
Power Purchase Agreements are contracts between two parties, one who generates electricity for the purpose of sale and one who is looking to purchase electricity . There are various forms of Power Purchase Agreements; these are differentiated by the source of energy harnessed...
s
Current ISOs
There are currently 6 ISOs within North America:- CAISO
- NYISO
- Electric Reliability Council of Texas (ERCOT); also a Regional Reliability Council
- AEISO
- Independent Electricity System Operator (IESO)Independent Electricity System OperatorThe Independent Electricity System Operator is a Crown corporation responsible for operating the electricity market and directing the operation of the bulk electrical system in the province of Ontario, Canada...
; operates the Hydro OneHydro OneHydro One Incorporated delivers electricity across the Canadian province of Ontario. It is a Corporation established under the Business Corporations Act with a single shareholder, the Government of Ontario....
transmission grid for OntarioOntarioOntario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
, CanadaCanadaCanada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean... - NBSO
Regional Transmission Organizations (RTOs)
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."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:
Characteristics
- Independence from market participants;
- Appropriate scope and regional configuration;
- Possession of operational authority for all transmission facilities under the RTO's control; and
- Exclusive authority to maintain short-term reliability.
Functions
- Administer its own tariff and employ a transmission pricing system that will promote efficient use and expansion of transmission and generation facilities;
- Create market mechanisms to manage transmission congestion;
- Develop and implement procedures to address parallel path flow issues;
- Serve as a supplier of last resort for all ancillary services required in Order No. 888 and subsequent orders;
- Operate a single OASIS site for all transmission facilities under its control with responsibility for independently calculating TTC and ATC;
- Monitor markets to identify design flaws and market power; and
- Plan and coordinate necessary transmission additions and upgrades.
Current RTOs
There are currently 4 RTOs within North America:- PJM Interconnection (PJM)PJM InterconnectionPJM Interconnection LLC is a Regional Transmission Organization which is part of the Eastern Interconnection grid operating an electric transmission system serving all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee,...
- Midwest Independent Transmission System Operator (MISO)Midwest Independent Transmission System OperatorThe Midwest Independent Transmission System Operator, Inc. is an Independent System Operator and the Regional Transmission Organization that provides open-access transmission service and monitors the high voltage transmission system throughout the Midwest United States and Manitoba, Canada...
; an RTO despite the ISO in its name - Southwest Power Pool (SPP)Southwest Power PoolThe Southwest Power Pool is the oldest North American Reliability Organization still in operation. SPP's story began in the early days of WWII, when America was furiously ramping up production of weapons and military supplies. After entering the War, the USA had an immediate and crucial need to...
; also a Regional Reliability Council - ISO New England (ISONE)ISO New EnglandISO New England Inc. is an independent, non-profit Regional Transmission Organization , serving Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont....
; an RTO despite the ISO in its name
See also
- United States energy
- Independent System Operator (ISO)
- Regional Transmission OrganizationRegional Transmission OrganizationA regional transmission organization in the United States is an organization that is responsible for moving electricity over large interstate areas. Like a transmission system operator , an RTO coordinates, controls and monitors an electricity transmission grid that is larger with much higher...
(RTO) - Transmission system operatorTransmission system operatorFile:Electricity grid simple- North America.svg|thumb|380px|right|Simplified diagram of AC electricity distribution from generation stations to consumersrect 2 243 235 438 Power stationrect 276 317 412 556 Transformer...
(TSO) - European Transmission System OperatorsEuropean Transmission System OperatorsThe European Network of Transmission System Operators for Electricity is an association of Europe's transmission system operators for electricity...
- Energy lawEnergy lawEnergy laws govern the use and taxation of energy, both renewable and non-renewable. These laws are the primary authorities related to energy...
External links
- ISO/RTO Council Includes a map of ISO/RTO Regions
- FERC RTO/ISO Regions
- North American Electric Reliability Corporation (NERC)
- Alberta Electric System Operator (AESO)
- California ISO (CAISO)
- Electric Reliability Council of Texas (ERCOT)
- Ontario Independent Electricity System Operator (IESO)
- ISO New England (ISONE)
- Midwest Independent Transmission System Operator (MISO)
- New Brunswick System Operator (NBSO)
- New York Independent System Operator (NYISO)
- PJM Interconnection (PJM)
- Southwest Power Pool (SPP)