Regional Transmission Organization - History

History

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. 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 projected that the electrical power 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. About a dozen states decided to deregulate but some pulled back following the California electricity crisis of 2000 and 2001.

RTOs ensure three key free marketer drives: open access and non-discriminatory 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 electricity 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.

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.