The promise and perils of exclusion: using institutional design principles and the theory of clubs to analyse regional transmission organization governance

Organized, competitive wholesale power markets emerged in the U.S. during the 1990s, driven by technological change and regulatory restructuring. Regional Transmission Organizations (RTOs) manage these markets while governing a congestible transmission network whose physical coupling creates ill-defined property rights and persistent coordination problems. The growth of new generations, storage, and digital technologies further strains RTO governance by increasing heterogeneity in participants and business models. Integrating Elinor Ostrom’s common-pool resource (CPR) framework with James Buchanan’s theory of clubs, this paper analyses how RTOs govern reliability through rule-defined exclusion. The analysis argues that reliability is a CPR, but that RTOs formalize a scalable, club-like exclusion regime as a governance institution. Because transmission systems are non-replicable, governance institutions and polycentric oversight must substitute for competitive discipline. Institutional reforms that make boundary rules adaptive and participation more inclusive are essential to preserve reliability while enabling innovation and long-run efficiency.