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Transmission 2000: Can ISOs Iron Out the Seams?

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

It would reduce the cents per megawatt-hour price that it takes to operate as a single ISO," Harris adds.

Getting There: The Battle Over Protocols

Paul Barber, senior vice president at Citizens Power, remains undecided as to whether the Northeast ISOs should merge into one large RTO.

"In a lot of cases [a combined Northeast RTO] will solve some of the problems. I wouldn't go so far that there is one solution that will solve everything. If there was a silver bullet we would have found it three or four years ago."

Barber notes inconsistencies exist between the locational marginal pricing models used by the New York ISO and the PJM Interconnection. (Through LMP, the ISO sets the congestion charge between two points as equal to the difference between the price of electricity at the two points.)

"At the seams, those models have to be consistent. If you go look at the PJM Web site and poke around, you will find a list of LMP pricing nodes," he says.

That list, as Barber explains, shows New York with two pricing nodes, one each for western and eastern New York.

Yet, he adds, "if you examine the New York LMP model as represented on their website, they represent PJM with a single pricing point. This discrepancy in modeling at the seams is disruptive to both the market and the consistency between the LMP price results of the two ISOs," he says.

According to Barber, "if PJM shows two pricing points looking north at New York, then New York should show two pricing points looking south at PJM."

Furthermore, he explains why ancillary services and installed capacity are so thinly traded in Northeast markets: Both products and capacity markets are inconsistently defined by the ISOs.

Although products are inconsistently defined, Barber notes that the ISOs have attempted to clarify the terms. In addition the contract standardization efforts by the Western Systems Power Pool and Edison Electric Institute could help remedy the problem.

But poorly defined capacity markets are more problematic.

"If you examine the different ISOs, they have different names and they list different characteristics for this capacity product. They even break it into pieces - some for short-term, like operating reserves, some of it longer-term, like installed capacity," Barber says.

Peter Esposito, vice president and regulatory counsel at Dynegy, adds that until the ISOs resolve the capacity and flows issues on a super-regional basis, threats to reliability and pricing issues will persist.

"[Furthermore], you have ramping issues - how quickly the plants ramp [up] and how quickly they are recognized as ramping from ISO to ISO," he explains.

"What has to happen at the end of the day is that all the RTOs have to have a consistent protocol for communicating among themselves," notes Esposito.

New York ISO's Museler believes that business practices of the ISOs are pushing towards convergence. In fact, he says he would be open to adopting another ISO's business model in order to streamline markets.

"But before one would adopt the business model of others, they would have to