ISOs and RTOs help ensure equal access to power for newer providers in the electricity market.
Deregulation of the electricity market led to competition in the wholesale market for electricity in the 1990s. This led federal and state regulators and utility companies to set up independent transmission operators that would make available equal access to power for newer non-utility companies in this market. Thus the Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) came into being. By 2011, 10 ISOs and RTOs serve two-thirds of electricity users in the United States, according to the ISO/RTO Council, an industry organization representing ISOs and RTOs.
Coordinating Transmission Outages
One function that ISOs and RTOs perform is to help coordinate transmission outages in a centralized way. A transmission owner should report any outages planned to the ISO or RTO, following their procedures. The ISO or RTO looks into this request to determine if such an outage would impede reliability of the system. They may approve the request or not. Even after they approve this sort of request, ISOs and RTOs have the leeway to cancel the approval if conditions change and they are concerned about any reliability fallout.
Power Transmission Planning
ISOs and RTOs also plan ahead, as much as 10 years ahead, to manage power transmission needs. This helps them take care of reliability issues, as well as to address the costs involved. As well, planning ahead to anticipate transmission needs helps market participants to identify the best way to deal with any anticipated shortages. They could come up with a market-based solution, such as a power plant, or opt for a regulated solution, such as a transmission line that is rate-based.
Facilitate Open Access
As part of their mandate, ISOs and RTOs also have to ensure that electric grid users have open access to the power system. This function is facilitated by the fact that these ISOs and RTOs manage the analytics and administration necessary for power generation and interconnection to the transmission facility. When the ISOs and RTOs receive a request for interconnection, they conduct an investigation into what sort of impact this interconnection has on the system reliability.
Price Competitiveness
ISOs and RTOs also function to ensure competitive market pricing and to reduce the market power of a participant if necessary. They generally prefer to focus on competitive market pricing but have also had to mitigate the market power of a market participant in situations where the local market structure does not make for price competitiveness. If there is a transmission constraint, for instance, that leads a market participant to hold a situation of power in the local market, ISOs and RTOs have some rules to limit the exercise of local market power.
