The electric industry is undergoing a paradigm shift due to a combination of factors, including emphasis on increased use of renewable resources (at both bulk power and distribution levels), larger emphasis on grid resiliency, and emergence of new technologies enabling greater demand-side participation. These factors have led to new operational challenges for both bulk power and distribution system operators and are also impacting the utility business model.

The increasing levels of variable energy resources put added pressure on bulk power system operators and require higher levels of reserves and regulation services. Much of the needed services and products can be supplied by leveraging assets located throughout the distribution systems, including Demand Response (DR) and customer-side Distributed Energy Resources (DERs). However, the bulk power system operators (Balancing Authorities, ISOs/RTOs) have limited visibility and control over such distributed resources.  

Building upon the experience gained in the last twenty years, since the advent of the Transmission Open Access paradigm in the U.S. and the development of transactive bilateral and centralized (ISO/RTO) energy markets, a new Distribution System Operator (DSO) construct is emerging as a venue to address these challenges. The DSO construct primarily targets distribution system operations — whether the distribution utility operates under a non-market Balancing Area, or a market-based (ISO/RTO) environment — and takes into account their interactions with bulk power operations, intelligent grid-edge devices, and prosumers (consumers with the ability to produce energy from their DERs).


Under the DSO construct, the distribution utilities will be able to offer new services to fill in the revenue gap that would otherwise increase with proliferation of DERs (such as rooftop solar and similar consumer/prosumer-side assets). In addition, utilities can leverage demand-side assets to provide ancillary services and flexible reserves in support of bulk power system operators; providing mutual benefit to the prosumers and Balancing Area operators.

The extent, scope, and roadmap for the evolution of the DSOs depends, to a large extent, on state and local regulatory provisions. In the continental U.S., California and New York are moving faster than other states, partly due to their more aggressive Renewable Portfolio Standard (RPS) initiatives, and emphasis on DER for enhanced energy efficiency and grid resiliency.

About the author:
Dr. Farrokh Rahimi, Ph.D. has more than 40 years of experience in the electric power industry. In his current role as Senior Vice President, Market Design and Consulting at OATI, Dr. Rahimi oversees development of market design and consulting activities. He is also a key contributor to OATI Smart Grid activities. Dr. Rahimi is an expert in restructured energy market design and related systems, including operations, commercial and business systems, and market monitoring applications.