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Regional Transmission Organization

A Regional Transmission Organization (RTO) is an organization that is established to control and manage the transportation (at high voltage) and flows of electricity over an area that is generally larger than the typical power company's distribution system.

Reasons for creating

RTOs were created by the Federal Energy Regulatory Commission (FERC) as a way to handle the challenges associated with the operation of multiple interconnected independent power supply companies. FERC describes this as a "voluntary" system, however both its orders and FERC commissioners' comments were clear that they wanted to force anyone involved in interstate power transmission to sign on the dotted line. The traditional model of the vertically integrated electric utility with a transmission system designed to serve its own customers worked extremely well for decades. As dependence on a reliable supply of electricity grew and electricity was transported over increasingly greater distances, power pools were formed and interconnections developed. Transactions were relatively few and generally planned well in advance.

However, in the last decade of the 20th century, some policy makers and academics began to argue that the electric industry would ultimately experience deregulation, and RTOs were conceived as the way to handle the vastly increased number of transactions that take place in a competitive environment. It should be noted that, ultimately, only about a dozen states decided to deregulate, others having pulled back after California's debacle and still others deciding that perhaps the old system was not, as often claimed, irretrievably broken. If the justification for creating RTOs was the management of deregulated power markets, the relative lack of these markets may call into the question the creation of the organizations.

RTOs ensure three key free marketer drives: open access and nondiscriminatory services, the continued reliability of a system unequalled anywhere else, and multiple transmission charges that will not negate the savings to the end-use customer. Critics of RTOs counter that the wholesale market as operated through the RTOs is in fact raising prices beyond what would obtain in a truly competitive situation, and that the organizations themselves add a needless layer of bureaucracy. Note that open access to local telephone lines required neither a government agency to manage it, nor divestiture of telephone assets by local telephone companies. In any event, the rules accompanying the operation of RTOs are unlike the rules of any other commodity market in the country.

The RTO concept provides for separation of generation and transmission and elimination of pancaked rates, and it encourages a diverse membership including public power. Wider membership contributes to the establishment of an entity with the size necessary to function as an RTO.


In the 1990s, as states and regions in the United States established wholesale competition for electricity, groups of utilities and their federal and state regulators began forming independent transmission operators that would ensure equal access to the power grid for non-utility firms, enhance the reliability of the transmission system and operate wholesale electricity markets.

Today, seven of these grid operators, either independent system operators (ISOs) or regional transmission organizations (RTOs), coordinate the power grid to ensure the reliable delivery of two-thirds of the electricity used in the United States to two-thirds of its population. Most are overseen by the Federal Energy Regulatory Commission (FERC).

ISOs and RTOs coordinate generation and transmission across wide geographic regions, matching generation to the load instantaneously to keep supply and demand for electricity in balance. The grid operators forecast load and schedule generation to assure that sufficient generation and back-up power is available in case demand rises or a power plant or power line is lost.

They also operate wholesale electricity markets that enable participants to buy and sell electricity on a day-ahead or a real-time spot market basis. These markets provide electricity suppliers with more options for meeting consumer needs for power at the lowest possible cost.

ISO/RTOs provide non-discriminatory transmission access, facilitating competition among wholesale suppliers to improve transmission service and provide fair electricity prices. Across large regions, they schedule the use of transmission lines; manage the interconnection of new generation and monitor the markets to ensure fairness and neutrality for all participants. Providing these services regionally is more efficient than providing them on a smaller-scale, utility by utility.

Today’s power industry is far more than a collection of power plants and transmission lines. Maintaining an effective grid requires management of three different but related sets of flows – the flow of energy across the grid; the exchange of information about power flows and the equipment it moves across; and the flow of money between producers, marketers, transmission owners, buyers and others. ISO/RTOs play an essential role in managing and enhancing all three of these flows.

Seven ISOs and RTOs currently operate in the U.S. They are the California Independent System Operator (California ISO); the Electric Reliability Council of Texas (ERCOT, an ISO); ISO New England (ISO-NE, an RTO); the Midwest Independent Transmission System Operator (Midwest ISO, an RTO); the New York Independent System Operator (NYISO); PJM Interconnection (PJM, an RTO); and the Southwest Power Pool (SPP, an RTO). (ISOs typically perform the same functions as RTOs, but cover a smaller geographic area, or are not subject to FERC jurisdiction, like ERCOT.)


Note: Columbia Grid is not a Regional Transmission Organization (RTO) and has no plans to become one. Columbia Grid was formed after its members refused to continue in efforts to form Grid West, a Northwest-wide evolutionary structure with the ability to add functions and to move toward independent grid management. The Columbia Grid parties, largely the Bonneville Power Administration and its Washington State public customers, wanted an organization with limited functions and no independent ability to change. The former Grid West participants who had argued for an eventual RTO, mainly investor-owned utilities and state representatives from Oregon, Idaho, Montana, Wyoming and Utah, formed the Northern Tier Transmission Group (NTTG), a nascent effort open to evolution but initially focussed on inexpensive and relatively easy improvements to grid management, including ACE diversity interchange (ACE is control area error), currently underway; transparent methodologies for calculating available transmission capacity; and planning, as required by FERC Order 890.


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