Balance of Power: RTOs and Reliability

This is the sixth installment in a multipart series to educate electric cooperative members about power generation and the increased challenges facing electric utilities, including the Electric Cooperatives of Arkansas. To read more, visit aecc.com/balance-of-power/.

RTO … ISO … FERC ... SPP ... MISO. A discussion about electric reliability is not possible without a certain amount of alphabet soup.

Let’s unpack these acronyms to better understand the players in our vast, interconnected electric grid.

What are RTOs and ISOs?

The terms Regional Transmission Organization (RTO) and Independent System Operator (ISO) are often used interchangeably; for simplicity, we’ll use RTO going forward. RTOs are nonprofit organizations that coordinate and control transmission systems. There are seven RTOs in the United States; all but one (Electric Reliability Council of Texas or ERCOT) are multistate and federally regulated.

Southwest Power Pool (SPP) and Midcontinent Independent System Operator (MISO) are the two Regional Transmission Organizations (RTOs) in Arkansas.

RTOs were voluntarily developed in the 1990s at the recommendation of the Federal Energy Regulatory Commission (FERC) to encourage competitive generation and open transmission access.

Andrew Lachowsky is vice president of market operations for Arkansas Electric Cooperative Corporation (AECC), the wholesale power supplier for the local electric cooperatives in Arkansas. He explains, “They were trying to make sure that there was fair and open access to transmission grids. When you drive home, you don’t want distribution lines to be on both sides of the street. You would like there to be one company that serves you. Same with higher voltage transmission lines; you don’t want to see them all over the countryside. So, while monopoly status makes sense for utilities, to ensure access to transmission lines are equitable, regulations are required. The regulators encouraged the RTOs that oversee the bulk transmission grid.”

Are the Electric Cooperatives of Arkansas part of an RTO?

The Electric Cooperatives of Arkansas are members of two RTOs: Midcontinent Independent System Operator (MISO) in the eastern two-thirds of the state and Southwest Power Pool (SPP) in the western third of the state.

MISO operates in all or parts of Arkansas, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, North Dakota, South Dakota, Texas, Wisconsin and Manitoba, Canada.

SPP operates in all or parts of Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming Lachowsky says, “We just happen to be one of the states that has two RTOs. The Northeast part of the U.S. has RTOs; California has one. ERCOT in Texas is an RTO. And then there are still areas in the country that don’t have RTOs. Much of the West doesn’t function with an RTO, and then the Southeast U.S. does not have an RTO. It’s not like every utility must belong to an RTO; there are incentives for organizations to join RTOs.”

What else do RTOs do?

AECC Chief Operations Officer Jonathan Oliver says, “We sometimes refer to SPP and MISO as markets. In addition to some of the basic functions that they have about ensuring a fair and open transmission grid, they also operate a power market. We offer generation into this market, and then our energy needs are also bid into the market.”

Lachowsky elaborates, “The reason they’ve developed markets is to optimize the transmission system. It’s similar to a highway where there’s a limited number of cars that can go on the highway. In the same manner, a limited amount of electricity can go onto large transmission lines. So, the market is set up to optimize the generation to serve energy needs in the most economical way by optimizing use of the transmission system.”

How successful have RTOs been with optimization?

To answer that, Oliver says, it’s important to discuss planning reserve margins.

“You have your peak demand out there,” he says. “And the planning reserve margin is above and beyond that peak demand to ensure that — should there be wholesale generational outages, should the loads exceed what you expect them to be — that there’s margin to make sure the system remains reliable.”

AECC maintained planning reserve margins even prior to RTO membership. In recent years, due to increased intermittent resources like wind and solar, RTOs have discovered that historical planning reserve margins aren’t adequate to maintain reliable operations — a troubling trend considering present-day winter storm outages/ curtailments. (It’s also worth noting, when load curtailment is ordered, that is a call made by an RTO; utilities are federally mandated to respond accordingly.)

Lachowsky says, “During Winter Storm Uri and Winter Storm Elliott, curtailments were ordered. Both MISO and SPP have reevaluated their required reserve margins. … While they’ve maintained similar summer planning margins, there have been significant increases with the winter planning reserve margins. This impacts AECC quite a bit because we have had winter peaks recently. We’ve had higher demand in the winters than we’ve seen in the summers.”

What does this mean for reliability?

This higher demand comes at a time when dependable baseload or dispatchable generation facilities are being prematurely shuttered.

Two coal plants co-owned by AECC — White Bluff Steam Electric Station in Redfield and Independence Steam Electric Station near Newark — will be required to cease operating in 2028 and 2030 respectively. And “renewable” intermittent resources like solar and wind, which are only available when the sun shines and the wind blows, do not provide a steady, constant supply of electricity required to provide reliable power. This is why the Electric Cooperatives of Arkansas favor a Balance of Power strategy of diversifying power generation.

Oliver says, “Winter storms like Uri, Elliott and Gerri and this influx of intermittent resources basically increases the risk of loss of load, which is why RTOs must increase the planning reserve margin.”

As for what this ultimately means for AECC, Lachowsky says, “There are strong penalties if we don’t have the amount of generation resources needed to meet the required reserve margin. So, we’re now in a position where we’re planning for additional wholesale generation facilities.”

As the Electric Cooperatives of Arkansas plan for the future, the organization will always remain committed to the needs, safety and well-being of electric cooperative members and true to the mission of providing energy that is Reliable, Affordable and Responsible.

Image below: Regional Transmission Organizations (RTOs) are nonprofit organizations that coordinate and control transmission systems.

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