Managing Regulatory Forces The US Regional Transmission Organization Model

Table of Contents

• DATAMONITOR VIEW
  • CATALYST
  • SUMMARY
• ANALYSIS
  • EU RTO proposals will borrow heavily from American experience
    • The failure of functional unbundling has re-ignited EU debate on creating independent transmission systems
    • The RTO model has been put forward as an alternative to ownership unbundling of network assets in the EU
  • RTOs are intended to ensure transmission system independence
    • There are five tools available to regulators to establish non-discriminatory access to transmission services
    • The US has a decade of experience in establishing and regulating RTOs
    • RTOs were designed as a response to persistent anti-competitive practices in wholesale transmission services
    • FERC identified four essential characteristics for RTOs and eight requisite functions
    • RTO-managed wholesale markets vary in sophistication
    • The difference between an ISO and an RTO is a question of jurisdiction
  • In the US, RTO frameworks have been put in place in conjunction with regulated transmission tariff regimes
    • US regulatory efforts to encourage the formation of RTOs have developed slowly over a decade
    • In 1996 FERC first launched a voluntary framework for RTO formation, which did not produce results
    • In 1996 functional unbundling was mandated only for publicly-owned utilities
    • By 2000 the voluntary RTO rule did not produce results, but investor-owned utilities still could not be compelled to join RTOs
    • Transmission tariff regulation acts as a ' default' rule to ensure transparency in the provision of transmission services
  • RTOs reduce the regulatory burden on utility participants and improve the efficiency of transmission pricing
    • In 2007, with RTOs still not mandated, FERC has strengthened transmission tariff regulation only for public utilities
    • The 2007 OATT amendment makes calculations of available transmission capacity transparent and consistent
    • Financial hedging mechanisms and new regulatory exemptions boost RTO formation
  • RTOs have established themselves across two-thirds of US states
    • Currently, RTO networks cover more than two-thirds of the continental US
    • RTOs have been formed on the back of existing power pools or through government mandate
    • RTOs can only fulfill their purpose if governance structures are sound
    • RTOs will evolve, but will continue to be the standard transmission system model in the US
• APPENDIX
  • Definitions
  • Further Reading
  • Datamonitor Consultancy
  • Ask the Analyst
  • Disclaimer
  • List of Figures
    • Figure 1: The Federal Energy Regulatory Commission (FERC) has proposed three of the five tools since 1992
    • Figure 2: FERC identified four essential characteristics for RTOs and eight requisite functions
    • Figure 3: RTO managed wholesale markets vary in services offered
    • Figure 4: US regulatory efforts to encourage the formation of RTOs have developed slowly over a decade
    • Figure 5: Geographic areas covered by ISOs/RTOs