ISOs as Market Regulators The Emerging Debate

Fortnightly Magazine - April 15 1998
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IN A RECENT SPEECH TO A SOPHISTICATED WASHINGTON AUDIence of electric industry players, FERC Commissioner William Massey raised a difficult question: "Can ISOs become self-policing institutions, thereby allowing FERC to embrace light-handed regulation of transmission?"

In answering his own question, Massey confirmed a quasi-judicial role for independent system operators (em but only if they are "equipped with proper operational rules, including market monitoring plans that report market power abuses and contemplate enforcement mechanisms to assure compliance." %n1%n

Despite such optimism, it appears unlikely the FERC will easily shed significant regulatory functions by making ISOs its proconsuls in a restructured electric power industry.

The FERC has provoked a growing controversy by its provisional approval of market monitoring plans filed by the Western Power Exchange and ISO-New England (formerly NEPOOL). Industry critics have raised constitutional, due-process and pro-competitive objections. Some state regulators believe the indicated mitigation measures to be inadequate; others question the efficacy of having ISOs use "behavioral" as opposed to "structural" remedies for market power abuses.

This gathering debate implicates radically opposed views on the proper role for ISOs.

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