Rethinking Grid Governance for the Climate Change Era

Date01 August 2022
AuthorShelley Welton
I. Introduction
One central but under-scrutinized way that fossil fuel c om-
panies impede the clean energy transition is by essentially
running the United States’ electricity grid, writing its rules
to favor their own private interests. In most of the country,1
the electricity grid is mana ged by Regional Transmission
Organizations (RTOs).2 RTOs are private membership
clubs in which incumbent industry members make t he
rules for electricity market s and the electricity grid through
private mini-democracies—with voting privileges reserved
for RTO members —under broad regu latory authori-
ty. 3 RTOs are able to adopt positions against new clean
energy technologies b ecause t heir hybrid, quasi-gover n-
mental institutional structures allow incumbent industry
members to dominate stakeholder processes. is Article
contends that United States grid governance must be rede-
signed to accommodate a new era of regulatory priorities
that include responding to climate change.
II. The Birth and Growth of RTOs
In 1999, to drive competition in the electricity industry
and facilitate open access, the Federal Energy Regula-
tory Commission (FERC) pushed for all utilities to join
Editors’ Note: This Article is adapted from Shelley
Welton, Rethinking Grid Governance for the Climate
Change Era, 109 CAL. L. REV. 209 (2021), and used with
1. is Article does not discuss regions of the country that did not join
RTOs—the Southeast and much of the West. A companion work-in-prog-
ress, e States at Opted Out, examines the status of electricity governance
in those regions.
2. Also called “Independent System Operators” (ISOs) in some regions. In this
Article, except where relevant for purposes of historical accuracy, I intend
RTOs to include ISOs, as “[t]he dierence between an ISO and RTO is
largely semantic these days.” D H, R S P’ S N.
67: W E M   T A 3 n.5
3. is description is overgeneralized. See the full article by Shelley Welton,
Appendix A (Feb. 2021), at
rethinking-grid-governance, for more on specic RTO structures. Shelley
Welton, Rethinking Grid Governance for the Climate Change Era, 109 C.
L. R. 209 (2021).
RTOs that would control the regional transmission grid,
in place of utility-by-utility system mana gement. However,
the agency left the design details up to the industry. e
Commission merely required that RTOs be (1)indepen-
dent, (2)regional, and (3)responsible for the operation of
the grid. In par ticular, FERC specied that RTOs must
be given authority to design and administer their own
regional taris, which would establish rules for regional
transmission mana gement.
Although FERC hoped that all regions would form
RTOs, FERC’s various eorts to create a uniform model
of grid governance were unsuccessfu l and ultimately
abandoned. Accordingly, the United States is left with a
hodge-podge system, where some portions of the country
(notably, the Southeast and much of the West) maintain
vertically integrated, regulated utility monopolies. Tod ay,
two-thirds of the country (by population) is under an
RTO. In these regions, RTOs now have several important
functions, including managing both the grid and regional
electricity markets and planning for grid expansions. Sev-
eral eastern RTOs have expanded their roles further by
assuming control over “resource adequacy.” In all of these
areas, RTOs establish critical rules through a combination
of membership voting and board oversight. FERC is sup-
posed to ensure that all such rules create “just and reason-
able” rates and practices.
When FERC designed RTOs, it presumed that it would
be able to adequately police their conduct; however, judi-
cial and legislative developments have complicated FERC’s
scheme of private grid governance. In particular, a pair of
4. See FERC Order No. 2000, Regional Transmission Organizations, 65 Fed.
Reg. 810, 811, 813, 824 (issued Dec. 20, 1999) (codied at 18 C.F.R. pt.
35 (2019)) [hereinafter Order 2000].
5. Id. at 842. FERC claried that, by “independent,” it meant independent
from “market participants.” Id.
6. Id. at 858.
7. See generally William Boyd & Ann E. Carlson, Accidents of Federalism:
Ratemaking and Policy Innovation in Public Utility Law, 63 UCLA L. R.
810 (2016) (describing the three dierent models of state electricity regula-
tion). Texas also has an RTO, which is not under federal jurisdiction. See
id. at 855.
8. E4T F, I., R E M: D I
G S I U.S. M S 3 (2016).
9. See 16 U.S.C. §824d(a) (2018).
by Shelley Welton
Shelley Welton is the Presidential Distinguished Professor of Law and Energy Policy at University
of Pennsylvania-Carey School of Law and the Kleinman Center for Energy Policy.
Copyright © 2022 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®,, 1-800-433-5120.

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