In the last twenty years, the United States has been in the process of restructuring its electricity generation. Today, wholesale electricity markets are controlled by regional transmission organizations (RTO) and independent system operators (ISO) that direct electric grid operations and run day-ahead and real-time pricing. These grid operators, which are regulated by FERC, now oversee more than two-thirds of America’s bulk power system and are meant to create value by improving system reliability and lowering electricity costs. However, there are serious questions about whether RTOs/ISOs are operating efficiently. Areas of concern include 1) whether reliability is improving and costs are more competitive, 2) whether daily energy markets are overly focused on the short term and 3) if the few existing long-term capacity markets are functioning as intended.
To ensure competitive wholesale electricity markets persist, grid operators’ performance is regularly monitored by independent entities as well as through self-assessment. In addition, entities like the North American Electric Reliability Council monitor compliance by recommending standards designed to ensure reliability. ISO/RTO Council members can point to this assessment data as support that grid operators have improved reliability considerably, have helped daily energy markets operate more efficiently, and justified capacity markets as necessary for long term revenue stability and reliability.
Those who question whether RTO/ISO performance needs improvement often refer to recent extreme weather events that demonstrate grid operation shortcomings at a time when properly functioning electric markets were needed most. A number of industry groups question whether reliability issues persist while also expressing concern regarding flaws with price formation in wholesale electricity markets. Further, others argue that capacity markets are neither competitive nor functioning properly.
Feature Photo – Courtesy of ERCOT