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To Pool or Not to Pool? Toward a New System of Governance

Fortnightly Magazine - March 1 1996

effort is made to create the highly artificial environment which is necessary if it is to function properly.


The invisible hand which guides men to promote ends which were no part of their intentions, is not the hand of some god or some natural agency independent of human effort, it is the hand of the lawgiver, the hand which withdraws from the sphere of the pursuit of self-interest those possibilities which do not harmonize with the public good.

*Macmillan & Co. Ltd., London, 1965, p. 56. See also, page 57, "But the fact that a mechanism is artificial dos not mean that it can be made to do anything. A steam engine is artificial; but its workings [are] still governed by the facts of its construction. And it was the central contention of the Classical Economist that, when the market conformed to the conditions which they postulated, then interference with its working was harmful and self-frustating."

1. Actual control of the IOU sector of the industry is more centralized than the number 254 suggests: some, perhaps 50, of these firms are nontraditional utilities, that is, independent power producers, and of the remaining, nearly one-quarter are subsidiaries of nine registered holding companies regulated under the Public Utility Holding Company Act of 1935.

2. Some state PUCs have some jurisdiction over some POUs.

3. When utilities form a group to examine their joint needs and resources and agree to operate and plan their systems for the best combined economy and reliability, they may be considered by "pooling" their resources and such a group is often referred to as a "power pool." See, FERC, Power Pooling in the United States, op. cit. p. 2.

4. Economic efficiency demands that there be only a single price at each point in space in each trading period (em e.g., every half hour (em and that the difference in price between any two points in space in a trading period should not exceed the cost of moving power from one point to the other. PoolCo proponents insist that with locational pricing that recognizes transmission congestion, both of these efficiency conditions will be satisfied for all points in the control area. Proponents of bilateral trading models, while not as explicit in their analysis, tend to build on analogies with the current North American natural gas industry, they assert that privately created markets will arise that will satisfy all conditions for efficiency. To my knowledge, their emphasis has also been on single control areas.

5. Government authority will prove especially important if the ISO or a nongovernmental industry governance agency is given authority to impose fines on generators (and perhaps distribution companies and users) for performance deficiencies.

6. Compare: "The control area load dispatchers are charged with maintaining the viability of the grid. In emergencies, they may have to take drastic steps on only a moment's notice. In that event, they should not have to worry about possible lawsuits. Time is short and there should be no hesitation when the grid is threatened. Hence, contract language should be drafted to