From The Team

What is a Distribution System Operator?

Authored by:
Steven Brisley
Last Updated: 
April 10, 2024

The term “Distribution System Operator” (DSO) refers to an emerging model for how electricity is delivered to (and increasingly provided by) local residents and businesses. It is an evolution in the business model for electric utilities that is driven by a changing relationship between electricity consumers and grid operators.

As Black & Veatch points out, the term “DSO'' is often used to describe a set of actors, roles and responsibilities, rather than a single organization. While some regions of the U.S. will see DSO activities managed by the local distribution utility, other regions may see independent entities or community choice aggregators take on the role of the DSO.

Regardless, the way electricity consumers interact with the grid is changing, and grid operators will need to adapt.

Drivers of Change

A major driver of change is the adoption of large, controllable electric devices in and near people’s homes and businesses.

For decades, electricity demand (or “load”) at homes and businesses increased by small and foreseen amounts (i.e. a family buying a new TV). The utility could forecast load growth 5-10 years out and ensure their equipment could handle the expected demand. Often the largest challenges arose in areas with new construction, where a utility would need to extend service and deploy new equipment. 

Today, the rate and magnitude of change is much greater. Adoption of rooftop solar systems has turned millions of homes and businesses into electricity generators. The addition of electric heat pumps and vehicle chargers is driving a 40% to 100%+ increase in a single home’s electricity demand during peak hours. Fleet electrification promises to one-up even those numbers as businesses turn from fossil fuels to electricity.

Source: Adam Young, 1898

That’s a lot of change for a utility to manage. But it’s also a big opportunity.

Increasing Interest In The Distribution System Operator (DSO) Model

Nearly every major electric device added to the grid today can be intelligently controlled by software.

As our nation’s power supply transitions to renewable resources, the flexibility offered by controlling those devices (known as “distributed energy resources” or “DERs”) can help us better utilize low-cost, zero-carbon generation and bolster local resilience and reliability.

The opportunity to leverage the flexibility of local resources is a key reason for the emergence of the Distribution System Operator model.

The Role of the Distribution System Operator (DSO)

With the DSO model, the distribution operator (or “utility”) of today takes on a more real-time “system operator” role – adding management tasks similar to those performed by independent system operators (ISOs) on transmission systems. 

Key DSO Responsibilities

Specifically, the DSO model adds three components to the role of grid operators:

  • Real-time operational support: monitoring grid conditions (congestion, voltage, transformer loading, and overall grid health) and dispatching local resources in real-time to support the needs of the distribution system
  • Local resource scheduling: managing all aspects of the use of distributed generation and flexible loads within a power supply portfolio. This includes net load forecasting, scheduling, and determining compensation for resource owners and aggregators.
  • Monetization of local resources: enabling local resource participation in wholesale markets (a la FERC 2222) and compensating resources for distribution-level grid services, such as deferral of capital investments, voltage support, balancing at the feeder, peak load reduction, and backflow mitigation

Simply put, the DSO is responsible for managing local grid conditions while enabling complex interactions to occur among grid-connected energy resources. These include interactions between distribution-connected devices and the bulk (transmission-level) power system.

How Utilities Become DSOs

Every potential DSO model is inherently multiparty. The ability to call upon local resources to support the grid requires the collaboration of DER owners, aggregators, distribution system operators, and transmission system operators.  

Sharing data across these parties is a crucial first step. That means bringing together customer device data with information about the state of the distribution grid and connectivity to the transmission system operator, wholesale energy market, and third-party DER aggregators. Ideally, that information is available from a single, shared data exchange for privileged access by relevant parties.

Data exchange for FERC 2222
Source: AEMO Project Edge

For utilities accustomed to multi-year technology implementations, such a high degree of integration may seem daunting. But utilities like Vermont Electric Cooperative have made rapid progress in pulling these data sources together and using the improved situational awareness to deliver cost savings and reliability benefits. 

With the data foundation in place, aspiring DSOs can then use the data to peer into the future via forecasting and to provide grid-aware orchestration of local resources. Eventually that leads to the creation of programs and markets to fairly compensate resources for supporting the grid with distribution and transmission-level services.

We discuss this evolution of DSO capabilities in more detail in our whitepaper series: The Rise of Local Grid Management. If you want to learn more, check it out.

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