July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Our industry stands at the threshold of significant change. Competitive forces and significant technological advances beckon the nation's electric utilities to step forward. The electric industry has the opportunity to create a future that provides the benefits of competition to all customer groups. If we don't restructure, someone else will do it for us. And that could put us at a distinct disadvantage.
At Wisconsin Electric, we've spent considerable time evaluating and discussing various industry restructuring models. In the future we envision, the benefits of competition become available to all customers simultaneously, not just certain sectors at certain times. The primary benefits include:
s A competitive market
s Customer choice in supply and value-added service
s Increased customer satisfaction
s Economic efficiency
s Enhanced environmental achievements
s Technological development
s Protection of utility and customer interests.
We envision splitting today's vertically integrated utilities into natural monopolies and competitive entities. Monopolies will remain where a single entity can provide the lowest cost to customers. Competitive entities will appear where competition can provide the lowest cost. Natural monopolies will be re-regulated so that appropriate incentives exist to provide electricity at reasonable prices. Competitive entities would operate outside of traditional regulation.
In our view, the re-regulated monopolies will be the generation pool, transmission, and distribution functions. The generation pool, or Poolco, coordinates transmission system operation. The Poolco creates a spot market for selling and buying electricity, provides access to the transmission system, and dispatches member power plants on a least-cost basis. The pool operates in the short-term to facilitate system interactions and allows long-term bilateral contracts between sellers and buyers of electricity. Today, each utility dispatches its own power plants, and in recent years, we've seen more brokering among utilities for economic and reliability reasons. In the future, this function will expand across an entire region, resulting in additional long-term contracts and additional day-to-day exchanges based on economics. This is the Poolco concept that will benefit the ultimate consumer by keeping prices as low as possible.
The Poolco will serve a multistate region under operational guidelines provided by a voluntary group interested in transmission grid operation. This regional transmission group (RTG) would include marketers, generating companies, transmission line companies, state regulatory commissions, and others. The RTG would govern all transmission companies within the region, set operating rules, and establish system reliability requirements. The RTG would also resolve disputes and set transmission service terms and conditions. Wisconsin Electric (em along with the 15 utilities, five state utility commissions (PUCs), several independent power producers, and power marketers that belong to the Mid-America Interconnected Network reliability council (em is developing a proposal for an RTG.
Ownership of the grid would belong to the transmission companies (Gridcos) or, alternatively, a regional transmission company (RTC). We believe transmission ownership should be removed from generation ownership in order to ensure a truly competitive, open-access market for generation.
An RTC that owns all transmission assets within a region would help optimize transmission operations. Grids owned by RTCs might coincide with grids governed by the RTG, or they might cover parts