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| Fig. 1: US Power Grids. [2] (Courtesy of the FERC.) |
Across the United States, the majority of customers of electricity are organized into what are called Regional Transmission Organizations (RTOs) or Independent System Operators (ISOs). (Fig. 1) RTOs and ISOs control and monitor bulk electric grids and are subject to regulation by the Federal Energy Regulatory Commission (FERC). [1] Created to promote greater economic efficiency, grid reliability, and ensure open access to generation and transmission access, most Americans are served by an RTO or ISO. [2] However, two regions, the West (with the exception of California) and Southeast, notably lack anything resembling an RTO or ISO. This report analyzes the potential path forward for the formation of an RTO in the American West, as well as potential benefits and downsides.
Some readers may be wondering what the difference is between an RTO and ISO. RTOs and ISOs serve similar purposes but were created by different laws; RTOs were established in FERC Order 2000 and ISOs emerged from FERC Orders 888 and 889. [1] RTOs are typically regional organizations, like the Southwest Power Pool, whereas ISOs are oftentimes in smaller areas, like the New York Independent System Operator. However, RTOs and ISOs serve very similar functions, which is discussed in the next section.
RTOs and ISOs were created in the late 1990s alongside with a wave of restructuring across the United States that sought to lower electricity rates and create competitive wholesale electricity markets. [2] Before restructuring, electric utilities functioned wholly as regulated monopolies, under contracts with regulators that gave them the exclusive right to provide electric service to a particular service area. [1] RTOs and ISOs created a platform for this restructuring to happen, creating wholesale day ahead and real time markets that allowed independent generators (known as independent power producers, or IPPs) to sell power to customers alongside traditional utilities. [1] RTOs and ISOs were also meant to coordinate the construction of high-voltage transmission over long distances, thereby allowing power from generators far away to access load centers.
Advocates of an RTO in the West cite several different reasons why an RTO may benefit grid development, primarily in terms of economics, sustainability, and reliability. All three of these arguments hinge on the fact that the coordination enabled by a RTO allow a utility to use many more resources over a much greater distance to serve their load. For the economic argument, when RTOs access energy over a wider footprint they serve customers with cheaper, further resources instead of costlier, closer resources. [2] Think of using solar from Arizona, with $0 marginal cost, to serve load in San Francisco instead of a local, but expensive, natural gas plant. To illustrate the economic argument, the Western Energy Imbalance Market (WEIM), a day ahead energy market operated by the CAISO, has delivered $7.41 billion in gross benefits to its members since November 2014. [2] Advocates argue that the WEIM is the tip of the iceberg for the economic benefits that a Western RTO would deliver to its members. [3]
The same rationale underlies claims about sustainability. RTOs allow states to rely more on renewable solar and wind resources that emit 0 carbon and less on 24/7 but emitting resources like natural gas and coal. The WEIM has realized curtailed emissions by more than 48,000 MT of CO2. [3] Lastly, advocates argue that RTOs improve reliability by allowing utilities to use other resources to meet load during peak hours or extreme weather events. [2]
One curious trend that emerged in the American West is the total lack of an RTO or ISO, with the exception of the California Independent System Operator (CAISO). Despite the arguments of RTO advocates, many in the West remain skeptical of the benefits an RTO will offer. The Western grid is highly balkanized, with many smaller utilities serving their own local load area and lacking the organization found in the East. Several potential reasons for this exist. Some say that the West's population is spread over a broader area than the East, making it more challenging to build enough transmission infrastructure to make an RTO effective. [2]
Two more likely reasons for the West's lack of an RTO are firstly resistance to the concept of an RTO and secondly resistance to the CAISO in particular. We will first interrogate broad resistance to RTOs. As discussed above, RTOs and ISOs were first created in the late 1990s to take advantage of a broad swathe of electricity regulation. [4] However, this new system was ripe for manipulation. The California Energy Crisis of 2000-2001 occurred when corporations took advantage of the newly-formed CAISO to cause soaring prices and various rolling blackouts across the state. [2] Western states saw what occurred in California and were highly mistrustful of the new opportunities presented by deregulation.
We will now investigate resistance across the West to joining the CAISO in particular. As the only RTO or ISO in the Western Interconnection, the CAISO is the most immediate and logical way to develop a West-wide RTO. However, many Western states are hesitant about joining an RTO that they believe will be dominated by California's aggressive decarbonization regulations. Though states with aggressive clean energy targets like California or Colorado may favor RTOs to more cheaply meet clean energy goals, more conservatives states like Wyoming and Utah balk at what they describe as paying for blue states' climate policies. [2] Blue states will need alternate arguments to sustainability to successfully induce more conservative states to form RTOs. Both the California Energy Crisis & struggles over decarbonization as justifications for Western-RTO resistance remind us that the formation of RTOs is highly political.
Furthermore, beyond the states, utilities themselves are hesitant to hand over the reins to RTOs, worried that regional cooperation will bury local interests.
An example of a utility's resistance to joining a Western RTO is illustrated by Xcel Energy's in Colorado. Colorado law has required all utilities within the state to join an RTO by 2030. [4] Xcel Energy has filed to join Markets+ (SPP's day-ahead market comparable to the CAISO's EDAM), but has deigned to join SPP West as a full RTO member. [4] Xcel justified their decision by arguing they would lose control of transmission planning and construction if they joined SPP West as a full member. Such hesitancy illustrates the consequences of a balkanized Western grid and the local interests, often related to a utility's own power and responsibilities, that prevent broader regional cooperation. [4] Critics argue firstly that Xcel's decision minimizes the economic benefits of an RTO and secondly that much greater benefits (an additional $4.2 million annually) would result from Xcel instead joining EDAM. [4]
The future of the Western grid will evolve according to the two most proximate RTOs, the CAISO and the SPP, which utilities have been joining piecemeal over the last few years. The recent decision by the Bonneville Power Administration to join the SPP's Markets+ over EDAM illustrates the political and complications that define Western RTO formation, as Bonneville signaled its decision was partly driven by fears that the EDAM would be California-dominated. [5] Regardless, the prospects for the formation of a Western RTO (or two) over the next several years illustrates key collisions in the electricity sector: local vs. regional, liberal vs. conservative, and regulatory reality vs. economic efficiency. This will certainly be an issue to keep an eye on and a key way that the American West's grid will change over the coming years.
© Emily Winn. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] J. DeLosa III, J. P. Pfeifenberger, and P. L. Joskow, "Regulation of Access, Pricing, and Planning of High Voltage Transmission in the U.S.," MIT Center for Energy and Environmental Policy Research, CEEPR WP 2024-03, February 2024.
[2] M. Giberson, "An RTO for the West: Opportunities and Options," R Street Policy Study No. 308, R Street Institute, September 2024.
[3] "Western Energy Imbalance Market Benefits Report," California Independent Systems Operator, July 2025.
[4] M. Jaffe, "Xcel's $30M Plan to Join Regional Power Pool Panned For High Cost, Lack of Benefit," Colorado Sun, 9 Jun 25.
[5] "Day-Ahead Market Policy," Bonneville Power Administration, May 2025.