Frontlines

Fortnightly Magazine - August 1998
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THE PRICING TURMOIL THAT STRUCK MIDWEST POWER markets during the week of June 22, with allegations of price gouging and calls for a wholesale price cap imposed by the Federal Energy Regulatory Commission (see Docket EL98-53), made for good copy but has obscured what's really going on.

"In the pleadings to FERC, I saw no evidence of price gouging," says attorney Jeffrey Watkiss, who represents power marketers who have asked the Commission for wholesale market reform.

"To the contrary, short-term prices seemed to behave as one would expect in a competitive market for a scarce commodity that cannot economically be stored. It spiked briefly and then returned to stable levels."

Markets go up and down, but the real story concerns the transmission network and the rules that govern both access to the lines and relief from line-loading congestion. These questions resound especially in the Midwest, where individual utilities operate the control areas, and where utilities are locked in a battle between supporters of two competing proposals for grid management.

Some utilities are looking beyond the traditional independent system operator, to other structures, such as transcos, gridcos and independent transmission companies. These terms all refer to the idea of an investor-backed, for-profit company that would both own and operate the transmission grid. Transco supporters insist that ISOs serve only as a transitional half-measure on the road to the end game.

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