Reforming FERC’s RTO/ISO Stakeholder Governance Principles

The Federal Energy Regulatory Commission (FERC) has not provided detailed guidance on Regional Transmission Organization (RTO) and Independent System Operator (ISO) governance since Order 719 in 2008; meanwhile, markets have evolved considerably. This article reviews past FERC orders to identify explicit and implied governance principles and criteria to achieve those principles, then proposes additional principles and criteria based on governance problems in PJM Interconnection (PJM). Specifically, a Fair Representation Principle is developed in response to PJM member sectors failing to reflect member diversity, low member participation rates, and inadequately defined state roles. The Neutrality Principle is proposed to address structural and administrative bias, and lack of public transparency. FERC must also expand all governance principles – including the existing Independence and Responsiveness Principles – to apply to all RTO/ISO members and non-member stakeholders, not just market participants. A methodical review of governance issues in all RTO/ISO should inform future FERC-level action, and FERC should regularly evaluate RTO/ISO governance processes to prevent stale governance rules from frustrating the goals of competitive markets. Governance reforms have the potential to improve the public legitimacy of decisions emanating from RTO/ISO stakeholder processes; however, reform supporters shouldn’t view this as a panacea to all the challenges facing the contemporary RTO/ISO.