Understanding the System: Regional and Federal Transmission Planning
FERC & RTOS
What is the Federal Energy Regulatory Commission (“FERC”)?
The Federal Energy Regulatory Commission, also known as FERC, is an independent agency that regulates interstate transmission of electricity, natural gas, and oil. FERC approves spending on new interstate electric power lines, reviews and approves natural gas pipelines, and ensures that electric markets are fair, reliable, and competitive to protect consumers. FERC has limited backstop authority over siting and permitting of interstate transmission, but plays a central role in approving natural gas, LNG, and hydropower infrastructure. Additionally, FERC ensures regulated utilities charge rates that are just, reasonable and do not discriminate.
FERC is led by five commissioners who are nominated by the President and confirmed by the Senate. The President designates a Chair who acts as the head of the Commission and sets the agenda. Commissioners serve staggered five-year terms, and no more than three can be of the same political party at any given time.
With respect to electricity market regulation, FERC has a few primary tools through which it can take action. These include:
Proactive tools that FERC can use to require or direct reforms:
Issuing a rulemaking under Section 206 of the Federal Power Act directing jurisdictional entities to enact specific reforms. In recent years, FERC has taken significant action with respect to transmission planning (discussed below), generator interconnection, and integration of distributed energy resources pursuant to this authority.
Initiating a directive to a specific grid operator to address an identified deficiency.
Organizing a technical conference, workshop, or other convening to gain insight or share best practices; these may or may not lead to subsequent rulemaking actions or other efforts.
Issuing a policy statement offering guidance and direction regarding the Commission’s priorities, to inform actions by jurisdictional entities.
Reactive measures by which FERC can approve/disapprove or respond to items incoming from RTOs/ISOs, utilities, states, industry, or other stakeholders:
Reviewing filings made by FERC-jurisdictional entities under Section 205 of the Federal Power Act. This includes reviewing market rule changes, grid planning reforms, and other proposals developed by RTOs/ISOs through their stakeholder processes. FERC’s response to these incoming filings is generally limited to either approving or disapproving the proposal, although FERC can give directives to inform a subsequent filing if it rejects an initial proposal.
Reviewing complaints filed by an aggrieved party under Section 206 of the Federal Power Act, and directing remedies if deemed necessary.
FERC has an especially important role in regions where the electric grid is overseen and operated by a Regional Transmission Organization or Independent System Operator (RTOs/ISOs). These organizations play a key role in electricity outcomes, as discussed below, and FERC has oversight of these decisions and activities.
What Is an RTO or ISO?
RTOs (Regional Transmission Organizations) and ISOs (Independent System Operators) coordinate how electricity is delivered across multiple states. They manage day-to-day grid operations, design and administer electricity markets, and plan transmission infrastructure. While their footprints are regional, their decisions have local impacts.
RTOs and ISOs manage the transmission of electricity over designated areas, accounting for roughly two-thirds of electric load served in the U.S. Areas of the country that are not part of an RTO or ISO are typically served by an individual utility. Rather than bid-based markets, electricity in non-RTO/ISO regions is either served by the utility or acquired via bilateral transactions, and transmission planning and buildout is more balkanized.
RTOs and ISOs coordinate the flow of electricity across the high-voltage, long-distance powerlines, develop market rules and administer those markets, uphold reliability standards, and plan for long-term needs of power systems. These entities are responsible for:
RTOs/ISOs forecasting load needs, dispatch supply and demand resources to balance the supply of electricity (generation) with the demand from consumers (load) to ensure reliability, and responding to any real-time contingencies or emergencies.
Day-to-day grid operation
All RTOs/ISOs rely on bid-based market clearing, and operate energy markets (to reserve electricity the day ahead and ensure sufficient supply in real-time) and ancillary services markets (to ensure sufficient grid services, such as reserves, to maintain reliability). Some regions also operate capacity markets, which pay resources ahead of time for availability in a future period, to ensure sufficient supply to meet future demand.
Administering markets to affordably meet system needs
RTOs/ISOs conduct forward planning, identify transmission needs, and administer the process of studying new resources for connection to the grid, known as interconnection.
Plan grid infrastructure
RTOs/ISOs do not own any generation or transmission lines.
The RTOs/ISOs are independent entities, with complex governance that includes a robust stakeholder process with structured voting requirements as well as independent Boards of Directors. The role of state entities in the decision-making process varies by region, as discussed below. FERC reviews the RTO and ISO market rules and ensures reliability and fair access to the electric grid.
Regional Transmission Organizations are responsible for balancing electricity supply and demand in real time for approximately 192 million people and play a critical role in long-term planning for the electric grid. There are six RTOs in the U.S. regulated by the Federal Energy Regulatory Commission (FERC).
The Electric Reliability Council of Texas (ERCOT) is not subject to federal (FERC) jurisdiction
The Electric Reliability Council of Texas (ERCOT) is not subject to federal (FERC) jurisdiction because its grid is nearly entirely separate from the rest of the country and thus does not trigger FERC’s jurisdiction over interstate sales.
RTOs/ISOs bring a number of benefits to the states and customers they serve, and drive cost savings due to:
Geographic and resource diversity that allows for more efficient buildout of generating resources to serve load and lower reserve margin requirements,
Economic dispatching of resources across that broad geographic area to ensure customers are served by the most affordable resources available,
Reduced transmission congestion due to more efficient regional transmission buildout, and
Open, competitive, transparent markets that facilitate new entry of affordable resources and timely retirement of less efficient units.
