What is an Independent System Operator

My mom knows that I often work with Independent System Operators. Recently, she asked, "So… what exactly IS an Independent System Operator?" Let's start with the words themselves: Independent System Operator is typically abbreviated as ISO and can be pronounced two ways:

1. As an initialism where we pronounce the names of the letters ("Eye Ess Oh"). This is analogous to the way we pronounce FBI or CIA.
2. As an acronym where we pronounce it as a word ("Eye So"). This is similar to the way we pronounce NASA or scuba (which, by the way, is Self-Contained Underwater Breathing Apparatus).

Now, let's think about what an ISO is not. ISOs are not utilities. ISOs do not deliver power to homes and businesses. ISOs do not send bills to electricity customers. ISOs are not generation companies. ISOs are not transmission companies. Broadly, ISOs do not own or directly operate the infrastructure of the electricity grid - power plants, substations, transmission or distribution lines, all of which are the most visible aspects of the grid.

Rather, ISOs manage bulk wholesale power markets and ensure reliability of those systems in the near term (real-time and day-ahead markets) and long term (10-50 years in the future). In the same way that air traffic controllers ensure the supply of runways is sufficient to meet the demand for landing and launching planes along with the timing of those events, ISOs balance the supply of electricity (through the dispatching of power plants) with the consumers' demand for electricity.

ISOs also operate like a stock exchange, bringing together the buyers and sellers of power. Imagine that you wanted to trade stock in a company - Itron for example (ITRI). Imagine that you had to communicate directly with Itron every time you wanted to buy or sell ITRI. Imagine further that you wanted to do this with thousands of other companies; we can expand the idea to include millions of investors who want to do the same. Clearly, this would be inefficient. Thus, there are stock exchanges and brokerage firms. The idea is similar in the electricity market.

This is complicated by many factors, including:

• There are many companies that generate power in a particular market. These companies have their own financial incentives and disincentives to locate their units, to expand or reduce the capacity of their plants and to generate power at a particular time.
• The supply of generation in a market contains a varied mix of sources, all of which have unique cost structures: nuclear, coal, natural gas, solar, wind, etc.
• In the near term, the capacity of generation is essentially fixed. In other words, there are only so many Megawatts of generation capacity that are available in a market at a given time. While new generation can come online in the long term, it is not likely to happen later today.
• Some markets have varied capacity to import/export load from/to other surrounding markets, effectively increasing/decreasing local power supply.
• There are millions of customers in a particular market, all of whom are making decisions to use more or less power at any instant based on the weather conditions, their lives and their businesses.
• There are multiple utilities operating within the market under the auspices of a particular ISO. NYISO for instance, which is the ISO in New York state, must work with Consolidated Edison, National Grid, NYSEG and many other utilities.
• The grid must be continually kept in balance between supply and demand within very narrow bands to be operational.
• Rooftop solar generation does not make any of these issues less difficult to address.

From the perspective of the wholesale power market, the buyers are typically distribution companies and retail suppliers who procure power on behalf of their customers (i.e., homes, businesses). The sellers are the power generations companies, who own and operate power plants. While there are some areas in which vertically integrated utilities (those who own power plants AND who deliver power directly to customers) still operate, the largest power markets in the U.S. are organized in such a way that the generation and distribution of power are operations run by different companies. The point is that the ISOs facilitate the transactions between the buyers and sellers, all while ensuring the reliability of the system.

ISOs are often located in nondescript suburban office parks. (I know this from personal experience.) The buildings are typically ringed by high fences that are protected by armed guards. While it is not a secret that ISOs exist, there are rarely any signs indicating the name of the organization behind the fence. None of this should come as a surprise because ISOs are key players in vital infrastructure.

In general, the public does not know what ISOs are, what they do or where they are located. In fact, most people have never even heard of an ISO. I would go even further: many people in the electricity industry are unaware of ISOs and their role in the market.

ISOs are not traditional Itron customers. With limited exceptions, they do not buy smart endpoints, meter data collection systems or meter data management systems. For many years, however, Itron has been providing forecasting software and services to the majority of ISOs in North America and Australia, most of which utilize Itron's MetrixIDR every day to forecast electricity usage to support their real-time (5-minute and 10-minute frequency) and day-ahead (60-minute and 15-minute frequency) markets. Many ISOs use Itron's software, statistical models and expertise to predict electricity demand in the next few hours so they can make better decisions about dispatching power plants and managing spinning reserves. Further, Itron has been actively supporting long-term forecasting with many ISOs, helping ensure the reliability of the grid while electric vehicles (EVs), behind-the-meter (BTM) solar generation, batteries, heat pumps and other technologies are transforming power demand and the infrastructure to support it. In fact, Itron's forecasting relationships with the ISOs is so robust that Itron hosts an annual conference solely for ISOs to address issues unique to them.

The electricity grid is a huge, complicated and interconnected system consisting of millions of people making independent decisions, along with millions of pieces of equipment. Notwithstanding some infrequent although dramatic exceptions, the lights generally turn on when we flip the switch on the wall. The fact that the system generally operates as well as it does is just shy of magic. ISOs serve an integral role in this magic act.