Understanding U.S. Deregulated Electricity Markets (ISOs/RTOs)

In many parts of the United States, the electricity grid and wholesale markets are managed by independent, federally regulated entities known as Independent System Operators (ISOs) or Regional Transmission Organizations (RTOs). These organizations don't own the power plants or transmission lines but act as neutral coordinators, ensuring reliable grid operation and facilitating competitive electricity markets across multiple utility service territories.

Demand Response (DR) plays a vital role in these competitive markets, providing a flexible resource alongside traditional power generation.

What do ISOs/RTOs Do?

  • Grid Operations: Monitor and control the flow of electricity on the high-voltage transmission system in real-time to maintain balance between supply and demand.
  • Market Administration: Operate centralized wholesale markets where electricity (energy), capacity (resource availability), and ancillary services (grid stability products) are bought and sold.
  • Transmission Planning: Coordinate planning for future transmission system upgrades and expansions.
  • Reliability Assurance: Ensure the power system meets mandatory reliability standards.

Key U.S. Deregulated Markets (ISOs/RTOs)

The major regions with ISO/RTO-managed markets where C&I demand response is prevalent include:

  • ERCOT (Electric Reliability Council of Texas)
    • Covers most of Texas.
  • PJM Interconnection
    • Spans 13 states and the District of Columbia in the Mid-Atlantic and Midwest (e.g., Pennsylvania, New Jersey, Ohio, Illinois, Virginia).
  • CAISO (California ISO)
    • Manages the grid for most of California.
  • NYISO (New York ISO)
    • Manages the grid and wholesale markets in New York State.
  • ISO-NE (ISO New England)
    • Covers six New England states (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont).
  • MISO (Midcontinent Independent System Operator)
    • Stretches across 15 U.S. states (primarily in the Midwest and South, from Louisiana to Minnesota/Manitoba) and the Canadian province of Manitoba.
Map of major U.S. ISOs and RTOs

Figure: Map of major U.S. competitive electricity markets (ISOs/RTOs).

Wholesale vs. Retail Markets & DR

It's important to understand the two levels where DR programs often operate:

  • Wholesale Programs: Administered directly by the ISO/RTO. These programs typically focus on grid-level needs (bulk system reliability, ancillary services, wholesale price reduction). C&I customers usually participate via aggregators who bid their load reduction into the ISO/RTO markets.
  • Retail / Utility Programs: Administered by the local distribution utility (even within an ISO/RTO footprint). These programs often target more localized issues, like relieving stress on specific distribution circuits (local peak shaving) or meeting state-mandated goals.

In some regions (like New York and California), these wholesale and retail programs coexist, and C&I customers may even be able to participate in both, subject to specific rules preventing double counting (learn more about value stacking).

The existence of these organized markets is what allows demand-side resources like C&I load curtailment to compete with traditional generation and earn revenue for providing valuable grid services.