RTOs and ISOs

The assumption that electricity markets are nationally deregulated is wrong: 40% of US electricity never touches a competitive wholesale market at all.

Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) are federally regulated entities that manage the transmission grid and run competitive wholesale markets across multi-state regions. Seven operate in the US: PJM (Mid-Atlantic/Midwest), MISO (Midwest/South), SPP (Great Plains), ERCOT (Texas), NYISO (New York), ISO-NE (New England), and CAISO (California). Together they serve roughly 60% of US load. The remaining 40%, concentrated in the Southeast and Mountain West, is still served by vertically integrated utilities that own the whole stack and sell at cost-of-service rates.

The two models differ in how prices form. Inside an RTO, generators bid into a centralized market and the operator dispatches cheapest first, producing real-time locational marginal prices (LMPs). Outside an RTO, a utility builds what regulators approve and recovers costs from captive customers with no competitive price signal.

A wind farm in Virginia versus Alabama. A developer in PJM territory (Virginia) can sell into a competitive wholesale market at the going LMP.

What happens to the same project proposed in Alabama, which has no RTO?

No alternative buyer exists. Alabama Power, a vertically integrated utility, decides whether to sign a PPA. If it prefers its own gas plants, the wind developer has no market to sell into. The absence of an RTO removes the competitive layer entirely.

Federal policy plays out very differently across the two models. Tax credits and renewable standards interact with RTO markets in ways that don't translate to vertically integrated territories.

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