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Energy Central: How Wholesale Markets Work – and Don't

Posted by Dylan Reed and Prusha Hasan on Oct 17, 2019

Energy Central reposted AEE's recent blog detailing how barriers to advanced energy should be removed. Read excerpts below and the entire Energy Central piece here

Two-thirds of the nation’s wholesale electricity sales occur in a competitive market managed by a Regional Transmission Organization (RTO) or Independent System Operator (ISO), with over 200 million customers in these areas and over $120 billion in annual energy transactions taking place. Under the Federal Power Act, these markets are overseen by the Federal Energy Regulatory Commission (FERC), which ultimately determines the rules for how wholesale electricity is bought and sold in the marketplace.

RTOs/ISOs develop the market rules that dictate whether and how energy resources can participate and compete. Wholesale electricity markets should allow all resources to compete on price and performance, as the Federal Power Act requires that the rates, terms, and conditions of service governing wholesale competitive markets be “just and reasonable” and not grant any “undue preference or advantage.” Many market rules, however, are outdated, having been designed with older technologies in mind. Those rules can favor incumbent technologies and disadvantage newer and more innovative energy options – that is, advanced energy.

In the 1990s. A number of states “deregulated” – more accurately, restructured – their electric power systems by requiring monopoly utilities to sell off their power plants and letting them maintain their exclusive franchise only for the delivery of electricity (i.e., managing the poles and wires that connect to homes and businesses). Thereafter, owners of existing power plants and developers of new ones would compete in open markets to deliver electricity at the lowest price.

The federal government, through FERC, organized these wholesale electricity markets at the regional level, establishing nonprofit entities called Regional Transmission Organizations, or RTOs, to manage a power grid fed by competing power plants. Private investors would build and operate power plants, and competition between these independent power producers would drive down costs, increase efficiency, and spur innovation. Competition would also free ratepayers from the risk that power plants built by their regulated utility would become outmoded and inefficient, shifting that risk to private investors...

Read the entire Energy Central piece here

Topics: AEE In The News