A Subtle but Clear Preference for ISOs

Fortnightly Magazine - March 1 2000
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Do not mistake the FERC's professed neutrality on what works best for regional transmission organizations.

In its final rule on regional transmission organizations, known as Order 2000,[Fn.1] the Federal Energy Regulatory Commission said it would not dictate to the electric utility industry whether and how to form RTOs. Don't be misled. The FERC claims to be agnostic,[Fn.2] but it still has a vision. And that vision leads inexorably to one conclusion. The preferred form for an RTO is the independent system operator, or ISO.

That's the only structure designed to do what the commission clearly wants - to make the transmission network more efficient and more valuable.

Some investor-owned utilities prefer an independent transmission company, or transco.[Fn.3] Economics professor Robert Michaels apparently agrees. He criticized the ISO idea in a journal article published late last year.[Fn.4] Yet no viable transco, gridco or hybrid is now operating. The ISO is the only game in town, forming the unquestioned linchpin of electric restructuring. In fact, without the handful of ISOs already up and running, the FERC's Order 2000 would be little more than a theoretical exercise.

The critics offer two basic arguments. First, they say the profit motive will make transcos more efficient than ISOs. Second, they see ISOs as little more than surrogates for the real stakeholders and thus incapable of neutral administration.[Fn.5] However, these arguments ignore the plain truth of what the FERC sees as important, as revealed in both Order 2000 and in the commission's recent ruling on the proposed Alliance transco.

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