The Independent System Operator (ISO): The Backbone of Deregulated Energy Markets

A power grid is the largest control system on the planet. Every time a consumer turns on a TV, or microwave, the grid instantly adjusts the power supply to accommodate the user. The US has two types of power markets: deregulated and regulated. In deregulated power markets, Independent System Operators (ISOs) are created. An ISO is an entity that is formed at the direction of the Federal Energy Regulatory Commission (FERC). An ISO is primarily formed to coordinate control and monitor the electric grid of the state or states that fall under it.

ISOs are deregulated since supply and demand economics drive prices. ISOs also act as a marketplace for wholesale power, meaning that the power plants transmission providers, utilities and power consumers can all buy or sell power for delivery at a specific time at a specific location. Power can be bought from a day to several years in advance for delivery at a fixed point. Different participants can bid for how much they are willing to pay and charge for power at these marketplaces. 

An ISO has primarily four main characteristics. 

Independence

An ISO should be independent from its market participants in financial interests, decision making and tariff setting.

Regional Configuration

The ISO is responsible for ensuring all regulatory requirements.

Operational Authority

An ISO must have the authority to control its transmission facilities and must be the security coordinator for its region.

Short-Term Reliability

An ISO must ensure that the region meets reliability standards. 

An ISO has multiple functions, including tariff administration, congestion management, market monitoring, planning, and expansion. Each of these services help or create a power system that is highly reliable and transacts power at the best possible rate for the consumers and suppliers. In the US. There are seven major ISOs in the US – the CAISO, MISO, NYISO, ISO-NE, ERCOT, SPP, and PJM.

The three areas other than these ISOs are Northwest, Southwest and Southeast and these are regulated markets. A regulated electricity market contains utilities that own and operate all electricity and everything that has to do with electricity. From the generation to the meter, the utility has complete control. The utility company owns the infrastructure and transmission lines and then sells the power directly to the consumers. In regulated states utilities must abide by electricity rates set by the State Public Utility Commissions. However, its benefits include stable prices and long-term certainty.