The electricity industry operated for years through utilities that were “vertically-integrated,” meaning that they owned generation, transmission, and distribution, which typically had monopolies in their designated service areas.
In 1996 the Federal Energy Regulatory Commission issued Orders Nos. 888 and 889. These orders required utilities that own transmission to provide nondiscriminatory access to all transmission customers. One way for a utility to comply with this requirement was to allow an independent system operator or “ISO” to operate its transmission system.
ISOs do not own the electricity transmitted over the grid, and they allow market participants to buy, sell and transmit electricity at the best available price. In 1998, as a result of Order 888 and state legislation (AB 1890), the California ISO was incorporated as a nonprofit public benefit corporation to fulfill this mission.
ISOs are often compared to air traffic controllers, because they independently manage the traffic on a power grid that they don’t own, much like air traffic controllers manage airplane traffic in the
airways and on airport runways.