Lessons from the history of independent system operators in the energy sector

This paper examines the choice, in electricity and gas systems, between having an independent system operator (ISO) and an independent transmission system operator (ITSO). Both optimise the operation of the system in real time. However ISOs do not own any electricity transmission wires or gas transmission pipes (i.e. electricity and gas systems), while ITSOs do. To examine the choice we will discuss the functions, cost structure, governance and pricing of the ISO, focussing on the US, with regard to controlling the system and operating associated power markets. We outline an ideal model for an electricity system operator and examine the extent to which system operation in the US and the UK conforms to the ideal. Finally, we look at the evolving role of system operators and how their efficiency might be evaluated. We conclude that there is much to learn from ISO experience in operating existing transmission systems. - Highlights: ► This paper examines the lessons from independent system operators (ISOs) in energy. ► We examine the nature of system operation arrangements in different countries. ► We go on to discuss the particular functions of the ISO and detail their costs. ► We examine the governance of ISOs around the world. ► We evaluate the evolving role of system operators.