The Federal Energy Regulatory Commission (FERC) was established in 1977 through the Department of Energy Organization Act of 1977. The FERC is a U.S. federal agency with jurisdiction over interstate electricity sales, wholesale electricity rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates. In 1996 and 1999, the FERC issued Orders No. 888 and 2000, ¹ respectively, which provided the framework to establish the independent entities tasked with overseeing wholesale transmission and energy commerce within the United States. Pursuant to these orders, seven independent system operators (ISOs) and regional transmission organizations (RTOs) were created in the United States. In addition, three similar organizations have been established in Canada. Figure 4-1 provides geographical information regarding ISOs and RTOs in the United States and Canada (herein referred to as regional transmission organizations or RTOs).

Figure 4-1
Map of ISOs and RTOs in the United States and Canada

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Source—ISO/RTO Council: Copyright © ISO/RTO Council, all rights reserved.

Regional transmission organizations currently operate markets that ultimately serve about two-thirds of electricity consumers in the United States and more than 50 percent of the population of Canada. In general, RTOs are tasked with maintaining the reliability of the high-voltage electric transmission system and facilitate wholesale power markets in their service territories.

Although RTOs were established in response to various FERC initiatives, FERC purposefully did not insist on one specific approach to their development. This has resulted in varying types of organization and services offered by RTOs across the United States. Although each RTO may have some unique features, these organizations generally ensure nondiscriminatory access to transmission, enable wholesale competition, and perform regional planning to ensure adequate electric resources. The markets administered by these organizations are monitored and assessed by the FERC on an ongoing basis and will continue to evolve in response to market and regulatory influences.

This chapter provides background information on RTOs and addresses certain types of transactions entered into by reporting entities impacted by these organizations. For illustrative purposes, the topics are initially discussed in the context of the market rules of PJM Interconnection, L.L.C. (PJM), a regional transmission organization that manages movement of wholesale electricity in all or parts of 13 mid-Atlantic states and the District of Columbia. PJM is the largest RTO in the United States.

This chapter also highlights considerations for similar instruments in other RTO markets in the United States.