Regional transmission organization (North America)
A regional transmission organization in the United States is an electric power transmission system operator that coordinates, controls, and monitors a multi-state electric grid. The transfer of electricity between states is considered interstate commerce, and electric grids spanning multiple states are therefore regulated by the Federal Energy Regulatory Commission. The voluntary creation of RTOs was initiated by FERC in December 1999. The purpose of the RTO is to promote economic efficiency, reliability, and non-discriminatory practices while reducing government oversight.
Definition
A regional transmission organization in the United States is an electric power transmission system operator that coordinates, controls, and monitors a multi-state electric grid. The transfer of electricity between states is considered interstate commerce, and electric grids spanning multiple states are therefore regulated by the Federal Energy Regulatory Commission.An independent system operator is similarly an organization formed at the recommendation of 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. RTOs typically perform the same functions as ISOs, but cover a larger geographic area.
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 ..." | "...designated by the 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 the safety and reliability of the electric system..." | "... 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 RTOs do the same thing with an added component of greater responsibility for the transmission network, as established by the FERC.
Background
FERC Orders 888 & 889
In April 1996, the Federal Energy Regulatory Commission issued two orders that changed the landscape of how electricity is generated, transmitted, and distributed throughout 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 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 that 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 did not mandate or require the establishment of ISOs. Rather, in an attempt to comply with the FERC's order, groups of participants 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 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 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 and the adoption of an electric transmission system information network." |
In addressing #2 above, the original order 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 and prescribed standards of conduct for its use and access. Subsequent orders provided clarifications, standards and protocols.| "Under this final rule, each public utility 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 each public utility subject to the rule to implement standards of conduct to functionally separate transmission and wholesale power merchant functions and the creation of a basic OASIS system." |
FERC Order 2000
Where as Order No. 888 provided for an entity to facilitate open access, it was not written with the intent to establish one. FERC Order No. 2000 was:| "The Federal Energy Regulatory Commission is amending its regulations under the Federal Power Act to advance the formation of Regional Transmission Organizations. 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 FERC'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" |