ISOs, RTOs and Utility Territories in Data Center Siting

Independent system operators (ISOs) and regional transmission organizations (RTOs) are nonprofit organizations that operate the high-voltage grid across a region. They do not own the wires. They dispatch generation, run wholesale energy markets, manage grid reliability in real time and coordinate regional transmission planning.

Most are regulated by FERC. ERCOT is the main exception: because its grid is largely isolated from the rest of the country, its wholesale market is overseen by Texas regulators rather than FERC. All of them work within NERC reliability standards.

For a data center, the ISO or RTO matters in three ways: it sets the market that determines wholesale energy and capacity prices, it runs transmission planning that can bring new lines and upgrades, and it runs the generator interconnection queue that adds new supply.

Footprints follow utility membership, not state lines, so parts of one state can sit in different markets. Market rules also change over time through stakeholder processes and FERC filings, which is one reason to check current rules for any specific site.

Much of the Southeast and much of the West outside California are not in an organized wholesale market. There, vertically integrated utilities own generation, transmission and distribution, act as or within a balancing authority, and plan their own systems under state commission oversight. Some western utilities take part in real-time energy markets without joining a full RTO.

For a large load, this often means one utility controls the whole answer: the generation to serve the load, the transmission to deliver it, and the rate it will charge. That can make conversations more direct. It also means the utility’s resource plan, and the state commission’s review of it, largely determine how quickly new supply is added for large customers.

In most states, retail electric service is assigned by territory. The utility whose territory contains the site is the one that will study and serve the load, regardless of which transmission line is closest. Territory boundaries can split counties and even individual tracts.

In ISO and RTO regions, the retail utility and the transmission owner can be different companies. A site may need agreements with both, and the ISO may need to review the load’s effect on the grid. Our guide to the large-load interconnection process walks through those steps.

Some states allow customers to buy energy from a competitive retail supplier while the local utility continues to provide delivery over its wires. Much of ERCOT works this way. In most other states, the utility provides bundled service at regulated rates.

• In retail-choice areas, the developer can negotiate supply contracts separately, often with more pricing options, but wires charges and interconnection terms still come from the utility.
• In regulated areas, the utility’s tariff sets most of the economics, though large customers may negotiate special contracts subject to commission approval.
• Renewable or clean-energy procurement options also differ, from utility programs to direct power purchase agreements in markets that allow them.

Rules vary by state and sometimes by utility within a state, so check the specific situation for each site rather than assuming one model applies across a region.

No market structure is better for data centers in general. Each one shifts where the cost, risk and decision-making sit.

• Energy prices. Wholesale prices and their volatility differ by region and by location within a market.
• Capacity costs. In markets with capacity constructs, large new loads pay into them, and those costs can move significantly between periods.
• Speed of new supply. Organized markets rely on generator queues and market signals; integrated utilities rely on resource plans approved by the state.
• Transmission planning. Regional plans can bring major new lines, but on long cycles; local upgrades are usually faster.
• Co-location and on-site generation. Rules for pairing a load with a generator, and for on-site generation and bridge power, differ by market and utility.
• State policy. Incentives, tariff terms and siting rules are set at the state level and change over time; see our guide to data center tax incentives.

When we compare sites across regions, we treat the market and utility as part of the site, alongside land, water and fiber. Two otherwise similar tracts in different territories can face very different power costs and timelines. Our guide to power timelines and interconnection queues covers the timing side of that comparison.