[BETA] Fortnightly

No one has yet explained why the electric industry needs independent system operators to manage the transmission grid and a private institution to do essentially the same thing.

That question remains unanswered even now that the North American Electric Reliability Council has released its draft legislation showing how it would recreate itself as NAERO, a self-regulating electric reliability organization insulated from antitrust scrutiny by governmental oversight.

"Reliability does not exist in a vacuum," noted P.R.H. Landrieu, v.p. of electric transmission for Public Service Electric & Gas Co., in comments filed August 17. "The best means of ensuring reliability, and the structure and process of a NAERO, is dependent ¼ on a number of outstanding issues. For example whether ISOs, transcos, gridcos or regional planning entities will be authorized or mandatory.

"It is not appropriate," adds Landrieu, "to engage in advocating piecemeal or patchwork legislation. ¼ If a stand-alone bill is introduced, an intense lobbying effort, including efforts to broaden the scope of the bill to include other issues, is sure to result."

Several years back I heard a comment I liked from Charles Stalon, an alumnus of both the Illinois Commerce Commission and the Federal Energy Regulatory Commission. He noted that utility competition implies a flip-flop in the role of government. Under the old scheme, said Stalon, you had heavy regulation of prices coupled with laissez faire oversight for reliability. NERC called it "peer pressure." Under competition, however, it's just the opposite: laissez faire prices with intensely regulated reliability.

Regulators can feel the turf shifting beneath their feet. State PUCs see power tilting to the FERC. Meanwhile, NAERO has yet to figure out whether it's a national or regional institution - as if it had any choice.

The old NERC functioned from the bottom up, with power emanating from the regional councils. That structure made sense, as reliability is rightly considered by most as a regional or even local concerns. a one-size-fits-all approach doesn't work.

Now logic collides with politics. To avoid any appearance that it will simply duplicate the regional ISOs, NERC unveils NAERO as a top-down institution, enforcing national standards. But NAERO would also make room for ARROs - "affiliated" regional reliability organizations - to appease the current regional councils, who insist on a continuing role after reform. Here the logic breaks down. If NAERO is truly national, why create regional ARROs that seem redundant of the regional ISOs? On the other hand, if NAERO invests real power in the regional ARROs, as would seem necessary, why not just stick with the bottom-up structure that worked for the old NERC, plus FERC oversight to settle antitrust concerns?

When faced with this contradiction last Winter, the "blue ribbon" panel on the future of NERC chose to pass the buck. In its report, the committee said that NAERO should draw up a Memo of Understanding to spell out its relationship with its new regional affiliates. That uncertainty persists in NAERO's draft legislation, a point underscored by the National Association of Regulatory Utility Commissioners, in comments filed by general counsel Charles Gray: "The