Establishing the Grid

New England's electric power industry, like that of the entire nation, changed dramatically during the past few decades. Until the 1970s, the industry was comprised of utilities that handled every aspect of providing electricity: generating it, transmitting it and then distributing it to homes and businesses. These utilities were regulated local monopolies that operated independently of each other.

The Great Northeast Blackout of 1965 marked a turning point for the region's electric power industry. Concerned about the system's reliability, the Northeast's power companies formed three "power pools" to ensure a dependable supply of electricity. The New England Power Pool (NEPOOL), formed in 1971 by the region's private and municipal utilities, was intended to foster cooperation and coordination among utilities in the six-state region.

During the next three decades, NEPOOL created a regional power grid that now includes more than 350 separate generating plants and more than 8,000 miles of transmission lines–all interconnected and dedicated to ensuring that New England never again has a region-wide power failure.

While the electric power industry's regulated monopolies worked well for generations, by the 1990s the lack of competition provided little reason to improve service, minimize prices or invest in new facilities and technologies. In New England, electricity rates were among the nation's highest, and the region had an antiquated electric power infrastructure.

In the early 1990s, Congress and the Federal Energy Regulatory Commission (FERC)–which oversees the electricity industry nationally–began enabling the restructuring of wholesale electric power. They believed competition would provide needed renewal, much as it had in transportation, telecommunications and financial services.

FERC created a level playing field for competitive markets, ensuring equal access to transmission grids and encouraging states to require utilities to sell off power plants and gradually eliminate regulator-set rates in favor of prices determined by the markets.

Creating Independent System Operators

FERC also created independent system operators, or ISOs, to oversee restructuring on a regional basis. These ISOs were given responsibility for ensuring reliability and establishing and overseeing competitive wholesale electricity markets.

Created by FERC in 1997, ISO New England has helped lead the nation's most advanced effort at restructuring: To date, five of the six states have required utilities to sell off their power plants, and 88 percent of the region's generation is unregulated, the most in the nation.

The Move to Markets

Working closely with the New England Power Pool, now a group of generators, utilities, marketers, public power companies and end users, ISO New England implemented wholesale markets in 1999. Today, more than 260 Market Participants complete in excess of $10 billion of wholesale electricity transactions annually, about a quarter of the power sold in the region (the remainder is sold through negotiated, long-term contracts).

ISO New England has enhanced these markets, notably in 2003, when it adopted "Standard Market Design." SMD added features such as a Day-Ahead Market to protect against price volatility and pricing that improves efficiency by accurately gauging the true cost of producing and supplying power anywhere in the region.

Markets Demonstrate Real Returns

The markets quickly demonstrated real benefits by encouraging investment in New England's power supplies. In the five years following the opening of wholesale markets in 1999, New England's capacity increased by 40 percent, significantly improving reliability and making genuine competition possible.

Wholesale electricity prices in New England, adjusted for fuel costs, have declined by 5.7 percent since the first full year of market operations. Prices dropped by 11 percent during the four-year period from 2001-2004.

Since the new power plants typically use more efficient and cleaner-burning natural gas technology, they also produce fewer pollutants. This has reduced emissions of nitrogen oxides (NOx), sulfur dioxides (Sox) and carbon dioxide (CO2, a substance that is thought to contribute to global climate change).

At the same time, system reliability has not only remained strong but been enhanced. The lights stayed on in almost all of New England during the August 2003 system failures that blacked out much of the Northeast, Midwest and Canada.

ISO New England continues to provide enhancements to the markets to further improve reliability and efficiency. For instance, it is working to eliminate artificial barriers that add to the cost of importing or exporting power from other areas, and it is developing additional market mechanisms that promote investment of needed resources in the right locations.

Strengthened Oversight and Governance through RTOs

In 2005, FERC designated ISO New England as the regional transmission organization for the six-state region. In this role, ISO New England continues to fulfill its responsibilities, but with broader authority over the day-to-day operation of the transmission system and greater independence to manage the power grid and wholesale markets.

As New England's regional transmission organization, ISO New England continues to fulfill its historic mission of helping to meet the region's energy needs-today, tomorrow and in future generations–to ensure the prosperity and quality of life for New England's 6.5 million households and businesses.