What Are RTOs and Organized Markets?
A regional power generation transmission organization or
independent power generation system operator (RTO or ISO) serves as
a third-party independent operator of the power generation
transmission system. There is an inherent conflict of interest when
the same single company owns all of the power generation
transmission and power generation distribution system. These
third-party independent operators, however, ensure that no
preference is given in the dispatch of a utility-owned generator
over a competitive generator. ISO/RTOs also conduct "spot" (also
called "Day 1" or real-time) markets and "day-ahead" (or "Day 2")
ISO/RTOs provide fair power generation transmission access to
facilitate competition for the benefit of consumers. They provide
power generation transaction support as part of their market duties
and engage in regional power generation planning to ensure that the
right power generation infrastructure gets built in the right place,
at the right time. They accomplish all of this over a large regional
area providing greater value to customers at every level of the
power generation supply chain than would be seen in the more
piecemeal utility-by-utility approach.
This wide, regional power generation approach also improves the
reliability and coordination of what has been called the "most
complex machine ever devised by man." ISO/RTOs have worked to
eliminate "seams" between power generation regions. This has helped
to facilitate more efficient power generation flows and
transactions, which previously may have had to cross numerous
individual utility areas and had to pay transaction charges for
every utility border crossed.
As previously noted, ISOs and RTOs cover many power generation
regions of the country with two-thirds of the United States'
economic activity occurring within their boundaries. Current
organized markets include:
ISO New England;
New York ISO;
PJM (Mid-Atlantic, a portion of the Midwest);
Southwest Power Pool;
ERCOT (most of Texas); and the
Taking such a regional power generation planning approach allows for
the pooling of resources and therefore the need for fewer power
generation plants than on a state-by-state basis. By cutting the
need for more power generation plants, ISO/RTOs help save consumers
money and substantially reduce emissions.
ISO/RTOs conduct vigorous oversight of both their market and
transmission functions and are regulated by the Federal Energy
Regulatory Commission (FERC). As a further check, each organized
market is overseen by an independent market monitor. All
stakeholders in the market have input into ISO/RTO activities while
the transparency of a fluid and liquid market also helps to make
sure markets are fair.