Individual Utility Ownership of Portions of the Electric Transmission Grid
Today’s electric transmission grid consists of 360,000 miles of high voltage transmission lines that deliver electricity to users throughout the country. This is a far different system from the one that Thomas Edison initially envisioned for delivery of electricity.
On September 4, 1882 Thomas Edison flipped a switch and lit 400 light bulbs in a building in New York’s financial district. He used electricity from a single dynamo located close to the point of use. He thought he could continue to provide electricity from similar small generators located close to the point of use. But his system was inefficient and replaced by a system consisting of large remote central station generating units serving multiple customers.
Today’s electric transmission grid interconnects over 7000 electric generating facilities. But who manages the electric transmission grid? And how do they ensure that the lights come on every time that we flip the switch?
A short time ago the answer would have been simple. Your local utility owned and managed the portion of the electric transmission grid that interconnected its generating plants to its local distribution system. Your utility probably also owned and managed the portion of the electric transmission grid that interconnected its system with neighboring utilities (referred to as “inter-ties”) that facilitated purchases and sales of wholesale power.
The 1965 Northeast Power Blackout
This system of individual ownership and management of portions of the electric transmission grid had its weaknesses. Those weaknesses first appeared in 1965 with a blackout of the Northeast United States that left 30 million people without power. It turned out that the inter-ties between utilities enabled an outage on one portion of the electric transmission grid to lead to numerous successive outages on other portions.
In response to the 1965 Blackout the utility industry agreed that the utility-by-utility planning was not working. They promised to start planning their high voltage transmission systems on a regional basis. They also promised that they would voluntarily implement uniform reliability procedures.
The electric transmission grid, as we now know it, developed as a result of this regional planning process. It enabled utilities to reliably transmit their power over multiple utility systems. In effect, the electric transmission grid operates like the interstate highway system. A power plant operating at almost any point on the electric transmission grid can deliver its power to almost any other point.
The FERC’s Open Access Orders
The availability of reliable long distance transmission of electricity led policy makers to conclude that generation should be provided on a competitive basis. Therefore, in 1995 the Federal Energy Regulatory Commission (FERC) issued its Open Access Orders. Those Orders required every utility to provide non-discriminatory access to its high voltage transmission system. In effect, the FERC was turning the electric transmission grid into an interstate highway system where each utility would have to transport their own generation and the generation of others on a equal basis.
When it issued its Open Access Orders the FERC was concerned that utilities could not be trusted to provide access on a non-discriminatory basis. They were concerned that utilities would favor their own generation at the expense of other parties’ generation. The FERC was afraid that it would have to deal with a raft of complaints from generators who claimed that utilities were violating the non-discriminatory access provisions of the Open Access Orders.
Creation of the ISO/RTOs
In order to avoid dealing with these disputes the FERC strongly urged utilities turn control of their transmission facilities over to new entities called Independent System Operators (since renamed Regional Transmission Operators or ISO/RTOs). ISO/RTOs are non-profit entities whose members include utilities, generators and customers. The members elect an independent Board of Directors who manage the ISO/RTO staff.
Utilities that join an ISO/RTO retain ownership of their high voltage transmission facilities. But they operate those facilities at the direction of the ISO/RTO. The ISO/RTO is responsible for coordinating and directing the flow of electricity over its region’s high-voltage transmission system. The ISO/RTO also performs the studies, analyses, and planning to ensure regional reliability for future periods. The ISO/RTOs also manage the wholesale power markets in which competitive generation is bought and sold. The operation of those markets will be addressed in a later Post.
The following are the ISO/RTOs that have been created in the United States:
The utilities in the Southeast, the Northwest and the Southwest (other than California) have not joined ISO/RTOs and continue to both own and operate their own high voltage transmission facilities.
The following video, prepared by the California ISO/RTO, describes the ISO/RTO responsibilities with respect to operation of their respective portion of the electric transmission grid.
The FERC treats the ISO/RTOs as the providers of all transmission service on their respective portion of the electric transmission grid. The ISO/RTOs are, therefore, responsible for ensuring that transmission is provided on a non-discriminatory basis, as required by the Open Access Order. The ISO/RTOs distribute all revenues (other than those required for internal operations) recovered for providing transmission service to the utility owners of the high voltage transmission facilities. That distribution ensures that each utility recovers their regulatorily determined revenue requirement. See Post entitled Determining Just and Reasonable Electric Rates for an explanation of regulatory ratemaking.
Regulation of Reliability on the Electric Transmission Grid
In 2003 there was another blackout of the Northeast United States. This time 50 million people were without power. The 2003 Blackout was the result of the failure of at least one utility (First Energy Corporation) to adhere to the voluntary reliability standards adopted by the industry after the 1965 Blackout. Congress decided that the reliability of the electric transmission grid was too important to rely upon utility promises of voluntary compliance. It, therefore, gave the FERC authority to make compliance with mandatory compliance standards and to impose penalties of up to $1 million per day for failure to comply.
Therefore, the answer to the question of who controls the electric transmission grid has three parts:
- First, the utilities still own the high power transmission lines that make up the electric transmission grid. They are responsible for maintaining those facilities and keeping them in good working order.
- Second, in most parts of the country the ISO/RTOs are responsible for directing the operation of the electric transmission and for long term planning.
- Third, the FERC is responsible making sure that the utilities operate and maintain their facilities in compliance with mandatory reliability standards.
I. David Rosenstein worked as an attorney and consulting engineer in the electric utility industry for 40 years. When he retired he wrote a book entitled Electrifying America: From Thomas Edison to Climate Change that describes the evolution of the electric industry from the time Edison invented the light bulb until today. Each of his posts in this Blog describe a different aspect of the past, present or future of the electric industry.