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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") markets.

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);
Midwest ISO;
Southwest Power Pool;
ERCOT (most of Texas); and the
California ISO.

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.

http://www.epsa.org/industry/primer/?fa=rto


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