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Understanding the North American wholesale power setup before entering these markets is crucial for ensuring a smooth entry.
By
Paul Pontenagel
The power grid, which transmits electricity throughout Canada, USA and Mexico is divided into 7 synchronous power grids, and multiple remote areas supplied by local power generating plants through low-voltage lines. The North American Bulk Electric System (BES) was instated like this to minimize the risk of continent-wide power disturbances.
Each of the 7 bulk power systems, also referred to as Interconnections, operates independently at a frequency of 60Hz. As the power phases are not synchronized between the Interconnections, power can only be flowed between them at designated converter stations, where power is converted to direct current and then back to alternating current to match the destination grid’s frequency and phase.
The Canadian provinces of Nova Scotia, New Brunswick, Ontario, Manitoba, and Alberta are operated by Independent System Operators (ISO), locally known as Electric System Operators (ESO). The power grids in the northern areas of Canada, as well as the territories of Saskatchewan and British Columbia, are traditionally regulated. Here, the power is produced, owned and distributed by the system operators via their own transmission systems. The supply here is mostly managed through long-term Power Purchase Agreements (PPA).
In the USA, seven Independent System Operators manage the power grid through bid-based markets. Two thirds of USA’s electricity load is served in these ISO regions. Similarly to Canada, there are 3 traditionally regulated regions, where power utilities are responsible for system management and system operation, as well as delivery to retail customers. The Southeast, Southwest and Northwest are traditionally regulated, which frequently entails that the power utilities own the transmission, generation, and distribution systems in the area.
In Mexico, apart from the Northernmost parts of the Baja Mountains, one independent system and market operator manages the grid – Centro Nacional de Control de Energía (CENACE).
Independent System Operators (ISOs) are the electric transmission system operators in the United States. They are independent, non-profit organizations responsible for coordinating, controlling, and monitoring the power grids within their operational areas.
In Canada, the body that performs these functions is called an Electric System Operator (ESO). In Mexico, it is the Independent System and Market Operator (ISMO).
An independent system operator is an entity with regulatory responsibilities. ISOs ensure the reliable and effective operation of the power grid in their operational area. Moreover, ISOs manage the scheduling of power generation and transmission to secure the stable supply of electricity to end consumers.
The concept of Independent System Operators was first defined by the Federal Energy Regulatory Commission (FERC) in 1996. Independent System Operators were instated with the goal of facilitating competitive wholesale electricity markets through an entity which manages but does not own the transmission. You can read more about the introduction of ISOs on FERC’s website.
There are 11 system operators in North America that serve over 65% of electricity consumers in the USA, 50% in Canada and all of Mexico. These operators differ slightly in function and jurisdiction:
Regional Transmission Organizations are organizations regulated by the Federal Energy Regulatory Commission (FERC). For an organization to gain RTO status, it needs to be an established ISO first. After an ISO fulfills the list of 12 requirements set forth by FERC, and if it is located within the United States, the ISO can apply for RTO status. The only American ISO which does not hold currently RTO status is the Electric Reliability Council of Texas (ERCOT) because its operational area does not cross state lines. ERCOT is thus regulated by its own Regional Reliability Council, the Public Utilities Commission of Texas.
The Federal Energy Regulatory Commission (FERC) is the independent regulator of interstate transmission of natural gas, oil, and electricity in the United States. The commission first suggested the formation of Independent System Operators, and then that of Regional Transmission Organizations. FERC answers to the U.S. Congress.
Both ISOs and RTOs are independent entities that manage grid operations and are responsible for billing, settlements, and long-term regional planning. While their functions, ownership structure and lack of affiliation with other market players are the same, RTOs are federally regulated and therefore indirectly answer to the U.S. senate. ISOs are either transmission operators whose operational area does not cross state lines or transmission operators of regions outside of the USA. There is one ISO which does not hold RTO status in the USA – ERCOT, three in Canada – AESO, IESO and NBSO, and one in Mexico – CENACE.
You can read about the differences between American ISOs and European TSOs here.
While ISOs are not federally regulated, they fall under the jurisdiction of the North American Electric Reliability Corporation (NERC), which is the international regulatory authority in North America. NERC’s area of responsibility spans the continental United States, Canada, and the northern portion of Baja California, Mexico.
NERC oversees six regional entities, which are responsible for ensuring the local energy industries follow NERC’s Reliability Standards. You can read more about the Regional Entities and ERO Enterprise on NERC’s website.
As there are multiple wholesale power markets in North America, spanning over 15 million km2 and operated by 11 independent system operators, market access in this area is highly dependent on the entrant’s goals and capabilities, as well as the resources they have available for the market entry.
Our clients at Time2Market typically choose which ISOs they are interested in and outsource the entry procedures and post-entry continuity to our team of experts. You can read more about the typical market access process here.
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Disclaimer: Time2Market ApS is not responsible for the completeness, accuracy, and actuality of the information provided. This article is intended for informational purposes only and should not be considered business or legal advice.
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