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Transmission 2000: Can ISOs Iron Out the Seams?

One Market? The Case for Consolidation
Fortnightly Magazine - May 1 2000

Experts debate whether merging the four big Northeast grid groups would create a rational market - or just a larger bureaucracy.

At Philadelphia in mid-March, at a workshop run by the Federal Energy Regulatory Commission to explore the future of electric transmission in the Northeast United States, one executive talked about building what could become the largest, most complex engineering masterpiece in the power industry - or then again, its greatest failure.

Phillip J. Pellegrino, president and chief executive officer at ISO New England, predicted that in the next three to five years, the independent system operators for New England, New York, the PJM Interconnection, and the Canadian province of Ontario would combine to form a super-regional transmission organization in the Northeast. Should that merger occur, the U.S.-based super-RTO region would surpass France to become the largest control area in the world.

Pellegrino believes the merger of the ISOs could help build robust electric commodity markets by creating more consistency in transmission service within the region, while driving down costs by eliminating duplicated functions.

But many in the industry, including Pellegrino, say technical limitations prevent a combined Northeast RTO from becoming a reality in the near term. Still other experts question whether a combined mega-RTO would be too large to ensure reliability and flexibility. Rather than any particular structure, they say, the real issue is how to create a seamless transmission market.

One Market? The Case for Consolidation

In an interview published last year (see , Pellegrino said that a move to combine ISO New England (controlling about 22 gigawatts of power) with PJM (50 GW) and the New York ISO (about 28 GW) would create a control area that would manage 100 GW of peak load.

"This is clearly well beyond the technical or practical limitations of anything that has ever been contemplated," Pellegrino said at the time.

(When quizzed on that claim this spring, Pellegrino replied, "It's like taking the New York Stock Exchange from a daily trading volume of 250,000 shares to a billion. We need faster computers for parallel processing. And then we need to be concerned with hierarchical control of interconnnected transmission networks - to ensure system resiliency and that transfer capability is not impaired.")

Nevertheless, he now maintains that it has never been a question of whether a super-RTO of that size would be built, but a question of when the technological limitations to building it would be overcome. Pellegrino notes that the FERC, through its Order 2000, has encouraged a large, regional footprint for RTOs. And recent plans for RTO formation have not been shy about developing into large control areas, he adds.

Yet the CEO remains cautious: "My view is we have to walk before we run. Never say never, but let us be practical in terms of how we can get there." For Pellegrino, that means solving the interregional inconsistencies, or "seams," that exist among the ISOs before looking to create a super-RTO or ISO.

In fact, the four Northeast ISOs last year signed a memorandum of understanding (MOU), a formal agreement to