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Fortnightly Magazine - June 1 1998

to guarantee both short- and long-term system reliability under each alternative?; (3) What institutions, rules and incentives will be needed to guarantee the short-term economic efficiency of the electric power system, including maximally efficient unit commitment and economic dispatch, plus the lowest-cost combination of market-determined generators and publicly controlled transmission assets?; and (4) How long will it take to evolve these structures? Are changes in state or federal laws needed? Is there a feasible route from today's structure to the new one?

I can't reject the proposition that the creation of sound ISOs is as good an approach as we are likely to get anytime soon. Transcos are certain to occur with increasing frequency. They will allow us to experiment further with incentive regulation and new cooperative approaches to transmission system expansion. Transcos will be independent of all generators and will have a potentially important profit motive. Yet experiences in the U.K. prove that transco governance is no piece of cake. And it will take time to assemble gridcos as large as many of today's ISOs.

It is not obvious that the creation of transcos will allow substantial changes in regulation soon, nor that independent transcos large enough to supplant regional ISOs can be established. Meanwhile, the FERC and a score of state commissions have unleashed the creative forces of generation competition, and power markers are crying out for fair access at fair prices now. The FERC may have the luxury of experimenting with alternative ISO models (em a luxury it must enjoy (em but it cannot freeze progress while it lobbies Congress for the authority to make large public or private gridcos.

California ISO President Jeff Tranen responded to a Commission question to compare transcos and ISOs with perhaps the most cogent summary of all. Under either model, Tranen said, "the problems we have to solve are the same."

Not the same, he should have clarified, but similar enough to allow the FERC to continue down the ISO path with the confidence that is neither overlooking nor impeding an obviously better alternative. F

Peter Fox-Penner is principal and director at The Brattle Group. He represents, among other clients, the Midwest ISO.


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