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News Analysis

Fortnightly Magazine - May 15 1998

on its Phase 1 report issued March 14. Alliance ISO, which could stretch from Michigan to North Carolina, would include a residual power pool to settle deviations and an optional trading mechanism for bulk energy. It would not be a full-fledged power exchange.

While Alliance ISO remains in planning stage, it would be allowed to order dispatch or redispatch for reliability purposes. But responsibility for carrying out the RPP function may move to a separate, independent body other than the ISO. Also, the Phase 1 report called for development of rules for working with one or more PXs.

Should ISOs direct the generation dispatch decisions of control area operators if the ISO is not a control area operator? That question was debated at the FERC-sponsored ISO conference held April 15-16 in Washington, D.C. Another issue of debate was whether the ISO acts as a stepping stone to the gridco and should be designed with that evolution in mind. Finally, participants questioned whether a gridco, either for profit or not for profit, was preferable to a nonprofit ISO that does not own transmission facilities.

Market Power and Structure

During the March 18 presentation in Washington, D.C., Block expressed concern over the eventual structure of power markets, which has received limited attention. He said coordinated dispatch, and not the wires part of the business, is the real monopoly.

Kenneth Gordon, senior vice president with National Economic Research Associates, emphasized the failure to distinguish between market power and market advantage and issues of utility incumbency value. Gordon observed that while analysts are clear on market power, regulators "screw it up." For example, they combine the wrong issues, such as those involving horizontal and vertical market concerns.

Block also pointed out that there is no clear consensus over the need for generation plant divestiture. At the start of competition, economists generally agreed that divestiture was important, but now there is disagreement, reflected in the various state implementations. The weakest expression of the concern for market power is the mere implementation of affiliate rules; the strongest is divestiture.

Stephen Merrill, representing Citizens for State Power, a group that stands for the timely deregulation of electricity at the state level, pointed out that residents of New Hampshire pay 13.5 cents per kilowatt-hour for electricity. Merrill, the former governor of New Hampshire, said that high prices are due to a unique set of circumstances. "We think our idiosyncratic problems should be settled in New Hampshire."

While the report preferred state restructuring over federal action, it did call for repeal of the Public Utility Holding Company Act and the Public Utility Regulatory Policies Act. Merrill said he had talked to a U.S. congressman that day who said only about six members of the House of Representatives would pass a test on electric deregulation, meaning there was no reason for Congress to act. Hogan said it was "good" that Congress had not yet acted, indicating that the "really hard problems are dealing with FERC's authority."

Ken Gordon noted that federal activity on electric deregulation has slowed, and that he found it