Why ISOs/RTOs are good for America
1. Enhanced Reliability
Because they span large geographic areas, regional markets promote efficiency through resource sharing. These organized markets are designed so that an area with surplus electricity can benefit by sharing megawatts with another region via the open market. This allows them to see the big picture when it comes to dispatching electricity as efficiently as possible. By maximizing megawatts as the demand for electricity increases, ISOs/RTOs help keep electricity flowing during peak periods.
2. Efficient Grid Dispatch
Through the use of advanced technologies and market-driven incentives, the performance of power plants within regional markets tends to be better than in areas under monopoly control. Evidence indicates there are lower power plant outage rates within competitive market regions because generation owners are motivated to keep plants on line, especially during peak periods, to maximize their revenues.
3. Better Price Transparency
ISOs/RTOs are better equipped to identify transmission bottlenecks, analyze reliability and evaluate the economic benefits of investing in additional transmission in an unbiased manner. In monopoly controlled markets, consumers and investors are faced with a “black box” regarding information about prices and locational value of transmission, which inhibits investment in the power grid.
4. Ease of Entry and Private Investment
ISOs/RTOs develop standardized non-discriminatory rules for grid interconnection and provide important price signals for new investment. As grid planners, they identify the best economic solutions to transmission issues across a large footprint. ISOs and RTOs provide greater access to the infrastructure investment necessary to keep up with the growing demand for electricity in the United States.
5. Renewable Power Added to Grid
ISOs and RTOs level the playing field for diverse types of power plants to compete to bring the lowest cost electricity to consumers. ISOs and RTOs are seeing robust investment in environmentally friendly power generation in their regions.
6. Market Monitoring Benefits
ISO and RTO market monitors play an important role in enhancing the performance of competitive wholesale electric markets. Competitive markets benefit customers by assuring that prices properly reflect supply and demand conditions. Market monitors identify ineffective market rules and tariff provisions, identify potential anticompetitive behavior by market participants and provide the comprehensive market analysis critical for informed policy decision making.
7. Market Flexibility
Organized markets offer diverse power products and services that can be used to hedge against price risks. Because average real-time energy prices correlate to short-term forward bilateral prices, ISO and RTO markets foster stable prices. Increased and improved price transparency means better contract pricing.
8. Liquidity in the Marketplace
ISO and RTO markets have more buyers and sellers than non-competitive markets. For instance, hundreds of companies are now vying for customers. Prior to restructuring, only a handful of companies were competing to bring the lowest cost power to consumers.
9. Market Diversity
Regions with organized wholesale markets have numerous buyers and sellers, but generator ownership is more concentrated in non-competitive regions. Formalized markets are able to monitor for the exercise of market power abuse and address market power through mitigation rules, recommending new operating procedures or proposing market structure changes.
10. Demand Response Development
ISOs and RTOs provide more information. And because grid and market data is available publicly, anyone can see it. As a result, more companies are encouraged to participate in energy markets—even companies that are paid to reduce demand on the grid. Demand response bids are very important during peak periods of electricity use because reducing demand is just as effective as increasing supply—and it is cleaner and more economical.