The Value of Regional Transmission Organizations, Part I

By Matthew Rose, Enerdynamics Instructor

Decisions made by regulators more than a decade ago formalized a shift to organized wholesale transmission organizations for much of the United States. As electric deregulation advanced in various states in the 1990s, federal regulators saw a need to encourage an independent structure to facilitate the planning and operation of wholesale market operations. This included the need to ensure non-discriminatory access to the transmission system especially as operations crossed state boundaries and covered large regional areas. The reliance on Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) has provided a workable platform for much of the U.S.[1]

This move also has resulted in a wide-ranging set of new rules and markets as well as a shift in how revenues and payments are handled and distributed.  It is fair to say that this transition to RTOs has had its share of debates, issues, and even the occasional need for judicial oversight. This article examines the current landscape of the RTO and RTO development. Next week we will follow with Part II and discusses the value and perceived benefits of RTOs and explore the issues and objections voiced by some stakeholders.

Current landscape of RTOs
To truly grasp the benefits and value provided by RTOs, it is important to first understand the current landscape of RTO-operated markets. Most notably, the reliance on RTOs has not been fully standardized across the country. Despite Federal Energy Regulatory Commission (FERC) encouragement (and even a failed move to a standard market design) there are large geographic areas of the country with no organized wholesale market operation. This includes not only some investor-owned utilities but also the public power and electric cooperative operations. Still, RTOs cover about two-thirds of the nation’s electricity customers.

The development of RTOs, however, continues to emerge over time. With the input of regulators and stakeholders, the rules and markets are constantly being refined and modified. For example, the design of markets to facilitate demand response opportunities was not envisioned at the outset of the transition to RTOs, but now this design is a vital piece of the value stream across all the RTOs.

There are also differences in the market design details across the RTOs. These differences reflect varied market composition, maturity of the RTO operations, capacity availability, and unique elements of the respective markets. For example, there are certain market programs such as encouraging energy efficiency as a resource in the forward capacity market that are currently offered by a couple of RTOs.

Membership within the various RTOs also is growing. For example, Entergy Utilities recently submitted an executed transmission owner’s agreement with the Midwest ISO. Entergy claims that joining the MISO will save the organization $1.4 billion in the first decade of membership.[2] East Kentucky Power Cooperative (and its 16 distribution utility owners) also announced it will join the PJM Interconnect pending FERC and Rural Utilities Services approvals.[3] These considerations all point to a working structure that offers its members value and benefit to continue ongoing growth and direction of the RTOs.

Next week’s post will take a deeper look at the value and benefits as well as the objections that some have to the RTO model.


References:

1. In this discussion the terms RTO and ISO are used interchangeably.

2. The Street, Entergy Utilities Proceed With Key Step towards MISO Integration, December 2012.

3. The Lane Report, East Kentucky Board Approves Integration Into Regional Transmission Organization, February 2013.

About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
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One Response to The Value of Regional Transmission Organizations, Part I

  1. Pingback: The Value of Regional Transmission Organizations, Part II | Enerdynamics

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