FERC Order 2000

In an attempt to push the industry toward its desired market model, FERC issued Order 2000 (actually issued December 15, 1999), which defined the minimum characteristics and functions for a Regional Transmission Organization (RTO), set forth a voluntary collaborative process intended to lead to the formation of RTOs, and required jurisdictional utilities to make filings with proposals for creating and joining RTOs that would be functional by December 2001 or to tell FERC why it wasn’t possible to meet that date and what they were trying to do to get there.

The four minimum characteristics for an RTO are:

• Independence from market participants
• Appropriate scope and regional configuration
• Possession of operational authority for all transmission facilities under RTO control
• Exclusive authority to maintain short-term reliability of the grid

Seven major RTO functions were laid out in FERC Order 2000:

• Tariff administration and design
• Congestion management
• Management of parallel path flows
• Provision of last resort for ancillary services
• Development of an open access same-time information system (OASIS)
• Market monitoring
• Responsibility for planning and expanding facilities under its control

The Order was designed to encourage utilities and transmission owners to join RTOs to create an organized competitive marketplace. It did not mandate participation in RTOs, but did require transmission owners to submit progress reports concerning plans to participate in RTOs.  

Order 2000 was an attempt by FERC to move to a standardized market design across the U.S. Yet it was unclear whether it even had the authority to order state-regulated utilities to consolidate their operations into RTOs. A number of existing ISOs received certification as RTOs and a new RTO, Southwest Power Pool (SPP), was approved in 2004.

But several regions raised opposition to the movement to RTOs, fearing loss of state control and possible loss of control over lower-priced generation resources. This attitude was especially prevalent in the Southeast, Northwest, and parts of the Rocky Mountain West. Two other factors played against the movement toward FERC’s vision — the California energy crisis of 2000/2001 and the Enron crash in late 2001. Suddenly many states and other entities that had been willing to consider restructuring no longer desired to participate in organized competitive wholesale markets. As a result, FERC made it clear that participation in RTOs was voluntary and no longer required transmission owners to file progress reports. The result is a marketplace where approximately two-thirds of power is traded in RTO markets, and one-third is traded in markets operated under open-access transmission without an Independent System Operator (ISO).