The Impact of Regional Transmission Organization (RTO) Policies on Illinois Commercial Energy Prices
The Impact of Regional Transmission Organization (RTO) Policies on Illinois Commercial Energy Prices
When an Illinois business owner opens their monthly electric bill, they often focus on the "Supply" or "Delivery" charges. However, the most significant drivers of that bill are often determined hundreds of miles away in the boardrooms and control centers of Regional Transmission Organizations (RTOs).
Illinois is one of the most complex energy markets in the country because it is served by two different RTOs: PJM Interconnection in the north (ComEd territory) and MISO in the central and southern regions (Ameren territory). The policies, auctions, and grid-management decisions made by these RTOs have a direct and profound impact on your commercial energy costs. This guide decodes the role of RTOs in the Illinois market and provides strategies for businesses to outmaneuver the resulting price volatility.
The Secret Movers Behind Your Rates: What Every Illinois Business Must Know About MISO & PJM
RTOs are the "air traffic controllers" of the power grid. They don't own the power lines or the power plants; instead, they manage the flow of electricity across state lines and run the "stock markets" for wholesale power.
Why Illinois is Split
The "RTO Divide" in Illinois is a legacy of how the state's utilities (ComEd and Ameren) chose to join the regional grid decades ago.
- PJM (Northern Illinois): Serves the Chicago metropolitan area and Rockford. PJM is known for its sophisticated and high-priced capacity market.
- MISO (Central/Southern Illinois): Serves Peoria, Springfield, Decatur, and the Metro East area. MISO has historically been lower-priced but is currently facing significant supply shortages as coal plants retire.
To understand the geographic split in more detail, see our resource on navigating the interplay of PJM and MISO markets for Illinois businesses.
The "Capacity" Concept
RTOs don't just trade "energy" (the actual electricity); they trade "capacity." Capacity is a payment made to power plants to ensure they are available to run when the grid needs them most (e.g., a 95-degree day in July). In Illinois, capacity charges can account for 20% to 40% of a commercial energy bill.
Decoding Your Bill: How RTO Capacity Auctions Directly Inflate Your Commercial Energy Costs
The price you pay for capacity is determined by a yearly "auction" held by the RTO.
The MISO Capacity Spike
In the 2022-2023 MISO auction, the price for capacity in Illinois (Zone 4) jumped from $5 per MW-day to $236 per MW-day. For a medium-sized manufacturer, this "RTO policy shift" added tens of thousands of dollars to their annual bill with virtually no warning. This was driven by a shortage of generation as older plants retired faster than new wind and solar could be built.
The PJM "Capacity Performance" Rules
In PJM, the "Capacity Performance" rules mean that power plants are heavily penalized if they fail to run during an emergency. While this improves reliability, it also increases the "risk premium" that plants build into their auction bids, which is ultimately passed through to Illinois businesses in their retail energy contracts.
Transmission "Cost Allocation"
RTOs also decide who pays for new high-voltage transmission lines. As Illinois builds more wind farms in the west and solar in the south, billions of dollars in new transmission lines are required to move that power to Chicago. RTO policies determine how much of that cost is "allocated" to commercial customers in Illinois versus other states in the RTO footprint.
Future Shock or Savings? Predicting the Impact of New RTO Policies on Your 2025-2026 Energy Budget
The RTO landscape is currently undergoing its most significant shift in decades, driven by federal regulations and the Illinois CEJA mandate.
1. FERC Order 2222: The "DER" Revolution
A new policy from the Federal Energy Regulatory Commission (FERC) requires RTOs to allow "Distributed Energy Resources" (like your building's battery storage or solar array) to participate in wholesale markets. This is a massive opportunity for Illinois businesses to earn revenue by selling their "flexibility" back to PJM or MISO.
2. PJM's "Reliability Reform"
PJM is currently rewriting its capacity market rules to better account for the "intermittency" of renewable energy. This is expected to lead to higher capacity prices in the short term as the market adjusts to a lower supply of "always-on" fossil fuel generation.
3. MISO's "JTIQ" Projects
The Joint Targeted Interconnection Queue (JTIQ) is a new MISO-PJM collaboration to build transmission at the "seam" between the two grids. While this will lower energy prices long-term by reducing congestion, the "transmission" line item on your utility bill is likely to rise in the 2025-2027 period to fund these projects.
Take Control: Smart Procurement Strategies to Outmaneuver RTO Volatility and Lower Your Illinois Energy Bill
While you can't change RTO policy, you can change how your business responds to it.
1. Master Your "Capacity Tag"
Your capacity charge for the next year is based on your usage during the RTO's "Coincident Peaks." In PJM, these are the 5 highest hours of the summer (5CP); in MISO, it's the single highest hour (1CP). By using a "Peak Alert" service to reduce your load during these few hours, you can "lock in" lower capacity charges for the entire following year. See capacity tag forecasting methods.
2. Choose the Right Contract Structure
- All-In Fixed: The supplier takes the RTO risk. This is the safest bet for businesses that want budget certainty.
- Pass-Through Capacity: You pay the actual auction price. This is risky but allows you to capture the full benefit of lowering your capacity tag through energy efficiency or on-site solar.
3. Leverage "Demand Response"
RTOs pay businesses to be part of the solution. By enrolling in an Illinois demand response program, you are effectively getting "paid back" for the capacity charges you are paying on your bill.
Conclusion
The boardrooms of PJM and MISO may seem far removed from your Illinois facility, but their policies are the "invisible hand" that shapes your energy budget. By understanding the mechanics of capacity auctions, transmission cost allocation, and the transition to a cleaner grid, Illinois businesses can move from being passive victims of price volatility to active managers of their energy future. In a market as dynamic as Illinois, knowledge of RTO policy is not just a "nice-to-have"—it is a strategic necessity for maintaining your competitive edge.
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Frequently Asked Questions
QWhat is an RTO and why does it matter to my business?
An RTO (Regional Transmission Organization) is a neutral entity that manages the high-voltage electricity grid and operates the wholesale energy markets. For Illinois businesses, the RTO (either PJM or MISO) determines the wholesale price of power and the capacity charges that make up a large portion of your utility bill.
QWhy did my capacity charges spike in Illinois?
Capacity charges spike when the RTO's 'Planning Resource Auction' results in higher prices due to a shortage of available generation, increased demand, or changes in market rules. In MISO (Ameren territory), prices recently spiked 40-fold, while PJM (ComEd territory) has also seen significant volatility due to power plant retirements.
QCan I avoid RTO-related price increases?
You cannot avoid the existence of the charges, but you can reduce their impact by lowering your 'coincident peak' usage—your consumption during the specific hours when the RTO grid is most stressed. This lowers your 'Capacity Tag,' which is used to calculate your charges for the entire following year.