ISOs and RTOs: The Results are In

Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) supply two-thirds of the U.S. population with wholesale electricity. They ensure that electricity markets are efficient and fair for all market participants and that bulk power systems are reliably operated. ISOs and RTOs provide incentives that lead to the more efficient operation of electric generators and the bulk power transmission system. In turn, these efficiencies enhance power system reliability and put downward pressure on wholesale electricity prices.

ISOs and RTOs BENEFIT CONSUMERS

• The large wholesale electricity markets operated by ISOs and RTOs help minimize the cost of electricity to consumers by taking advantage of economies of scale in generation and transmission; using energy provided by existing electric generators more efficiently; and reducing the need for overall generating capacity.
• Even though the demand for electricity is growing, electricity prices are falling. In 2006, nominal wholesale electricity prices fell in all organized U.S. wholesale markets.
• ISO and RTO price transparency lets developers know the value of their power, making investment decisions easier.
• Coordinated planning stimulates new transmission investments, which reduces congestion costs by moving electricity more efficiently within and between regions.
• The competitive process has motivated improvements in generation operating efficiencies and investment in new, more efficient generation facilities – more demand is served by lower-cost, higher-efficient fuel generators.
• Infrastructure improvements in the ISO and RTO regions have improved access to additional lower-cost resources.

ISOs and RTOs IMPROVE SYSTEM RELIABILITY

• ISOs and RTOs coordinate electric generation and transmission, manage competitive wholesale electricity markets, provide nondiscriminatory transmission access, and conduct regional planning to ensure a reliable grid.
o PJM’s Regional Transmission Planning program uses a 15-year planning horizon that incorporates both reliability and economic transmission projects. Its board has authorized over $7 billion of new transmission investment since the program’s inception in 2000.
o Since 1999, ERCOT has built, rebuilt, or re-conductored over 5,200 circuit miles of transmission at a cost of $3.5 billion
o When the ERCOT grid lost nearly 1,300 MW of generation units on December 22, 2006, it was able to recover almost instantaneously and return to normal operating conditions with minutes of the system disturbances.
o Between 2002 and 2006, New England ISO transmission projects totaling $833 million were placed into service. Projects valued at $336 million will come online by the end of 2007. Transmissions projects are in the works that total $4.4 billion.
• Despite experiencing a significant load growth, ISOs and RTOs have maintained high levels of grid reliability, and have met peak loads without incident.
o CAISO was able to meet the record-breaking demand of 50,270 MW during the 2006 heat wave with reserves to spare.
• ISOs and RTOs use several reliability tools to assure real-time grid security, such as a five-minute dispatch, day-ahead electricity coordination, and contingency reserve sharing. The success of these tools is confirmed by the continuing decline of “transmission load relief” incidents.
• Demand response turns customers into partners with the bulk power system operator and suppliers. It acts as a resource to address reliability problems, enhances long-term system adequacy, mitigates peak prices and price volatility, limits supplier market power, and can act as a balancing resource for variable renewable resources.
o As of September 2007, more than 1,200 MW of demand response are being used to protect power system reliability in New England.
o During the 2006 heat wave, a total of 2,700 MW from emergency demand- response programs and voluntary conservation helped keep California’s electricity running.

ISOs and RTOs BENEFIT THE ENVIRONMENT

• ISOs and RTOs host 73 percent of today’s installed wind generation, which is well above their 44 percent share of wind energy potential and 53% share of total North American electricity demand.
• Renewable generators account for 142,711 MW of the 326,429 MW of generation in the ISO and RTO interconnection queues.
• ISOs and RTOs use renewable resources for about 9% of electricity produced.
• ISOs and RTOs allow for the use of demand-response techniques, which result in fewer generating plants operating and thus lower emissions and fuel usage.
• The coordinated regional planning of ISOs and RTOs helps facilitate the growth of renewable energy generation. ISOs and RTOs are finding innovative ways to finance and build transmission lines to bring renewable generation from remote sites to the market.
o CAISO has secured approval from FERC for a new funding mechanism to ease and accelerate the allocation of costs to interconnect thousands of megawatts of new renewable energy projects in remote areas.

Sources:
“Increasing Renewable Resources: How ISOs and RTOs are Helping Meet This Public Policy Objective.” IRC/RTO Council, October 16, 2007
“Increasing Demand Response and Renewable Energy Resources: How ISOs and RTOs are Helping Meet Important Public Policy Objectives.” ISO/RTO Council, October 2007
“Progress of Organized Wholesale Electricity Markets in North America.” IRC/RTO Council, October 16, 2007
“Harnessing the Power of Demand: How ISOs and RTOs are Integrating Demand Response into Wholesale Electricity Markets,” ISO/RTO Council, 16 October 2007

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