Commission Watch

IOUs, RTOs duke it out over standardization.

Have regional transmission operators (RTOs) and independent system operators (ISOs) asked for excessive levels of credit from customers, to the extent that the burdensome requirements foreclose full market participation by competitive entities? The Federal Energy Regulatory Commission (FERC) must face that difficult question as it investigates whether to institute a rulemaking on credit-related issues for service provided by ISOs, RTOs, and transmission providers.

Finding the right balance is critical. Higher-than-needed credit requirements imposed on market participants by RTOs/ISOs exacerbate the financial strain on those participants, reducing the amount of participation and liquidity in the market. Lower liquidity then reduces customer choices, transparency, and competitiveness of the market.

RTOs or ISOs currently act as settlement agents between buyers and sellers in electric market transactions. An RTO/ISO determines each customer's risk profile and collects collateral based on that profile to protect against losses from defaults. Bad debt, when it occurs, is spread across all remaining market participants.

FERC notes that transmission providers are entities that provide electric transmission service but are neither ISOs nor RTOs, and credit concerns facing transmission providers and ISOs/RTOs differ. Those differences warrant varying approaches to creditworthiness requirements for those entities ().