[BETA] Fortnightly

IF AN INDEPENDENT SYSTEM OPERATOR OVERSEES THE TRANS-

mission grid, how much independence is too much? Should ISOs cede control over dispatch to scheduling coordinators, or market functions to a power exchange? Addressing some of these questions, a new report released in April by The Progress & Freedom Foundation criticizes a restructured electric industry built on ISOs with restricted authority.

"A highly regulated transmission network, especially one regulated from Washington, has the potential to seriously undermine the gains from introducing competition," said Michael Block, author of the report and professor of law and economics at the University of Arizona.

The report, Deregulating Electricity: Progress in the States,

compares the restructuring methods used by 16 states in advanced stages of restructuring. It analyzes the typical model for restructuring which consists of: (1) a competitive generation sector; (2) a jointly owned, independently operated but highly regulated transmission network; and (3) locally regulated distribution companies that have exclusive service territories.

Block found that the wires component of the emerging model is questionable. In the report, he suggested that Congress develop an alternative to the ISO model devised by the Federal Energy Regulatory Commission. Specifically, he said Congress should enact a bill allowing transmission system owners to define property rights and to operate the grid as a competitively ruled joint venture.

Avoiding a "Bad Idea"

The report agreed with comments of the New Jersey Public Utilities Commission that separate ISOs and power exchanges, as devised in California, are inefficient: "Only by integrating dispatch and the spot market can the full coordination economies of centralized dispatch be realized." It finds that the approach taken by the Pennsylvania-New Jersey-Maryland Power Pool (em a fully integrated ISO/PX with nodal pricing (em is the most efficient structure for transmission and dispatch.

PJM, meanwhile, had fought a PECO proposal to create a privately held grid company that would own (em not merely operate (em transmission lines and operate on a profit basis. PPF advocates creation of exactly that type of PECO-favored gridco.

According to William Hogan, Research Director of the Harvard Electricity Policy Group, the separation of the ISO and PX is a "very bad idea," and he added that the two entities "are doing the same thing," which is why they need a seamless interface. He observed that the separation "creates many opportunities for mischief," and that he hopes such separation is not repeated. "We have seen the future, and it is PJM," Hogan said.

The PJM/California debate will continue, as other entities decide whether to give redispatch authority to the ISO, as in the PJM model, or whether to prohibit the ISO from engaging in redispatch as in the California model. Under the latter model, redispatch is assigned to scheduling coordinators. But PJM, like the New England and New York ISOs, started as a power pool, making it easier to put central dispatch under one roof, unlike California, which did not begin with a power pool.

The recently proposed Alliance ISO held its first public conference April 3 in Arlington, Va., to flesh out details of the ISO based