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Transmission 2000: Can ISOs Iron Out the Seams?

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

is up, distributed generation will get paid the high price, and when the price is down, they will get paid the lower price unless they have a bilateral contract with someone. They do get paid the clearing price for their area.

For this summer, we are trying to allow [DG owners] to bid into the capacity market to allow them to contract for their capacity - not just their energy. They are unique and have some unique needs.

"If you divide up that huge grid into small pieces, then the operation of each of the small pieces is dominated by fringe affects of all their neighbors," he explains.

"If you consolidate the small pieces into sufficiently larger pieces, eventually operations will be affected more by internal matters and less by boundary conditions," Barber says.

A Different Path: Dynegy's Umbrella Concept

Rather than merge ISOs to eliminate seams, Dynegy would create a super-regional oversight board to melt them away. You wouldn't need to wait for the ISOs to perfect their merger to gain the benefits that come with fewer seams, says Esposito. This new agency, described by Dynegy as the interregional transmission systems coordinator, or ITSC, would review and address seams issues, scheduling, curtailment, and related business practices associated with providing transmission service among the RTOs, according to Esposito. Analysts say that having an ITSC would preclude the need for a super-RTO that may be too large, technically unstable, and pose reliability risks.

"Rather than have to get to a bigger RTO, an ITSC would allow much more competition and the industry could have smaller RTOs," Esposito adds.

The ITSC would address the physics of the system by focusing on the capacity capability on a regional basis, he says. Furthermore, an ITSC would allow more RTOs under its umbrella, representing a larger region, because capacity could be determined across the entire interconnection (Eastern, Western, or Texas).

Of course, some analysts see this ITSC concept as supplanting the job description of today's North American Reliability Council (NERC). Esposito in fact acknowledges that some say NERC is the logical party to perform the functions he proposes for the ITSC.

"There are those of us who, while we see merit in that suggestion, we would want to see some changes in the NERC governance structure," he says. "I think you have to have a more representative governance structure at the committee level, more akin to the PJM advisory committees."

Esposito has mixed feelings about combining the Northeast ISOs. He prefers the ITSC structure, under which it would be possible, as he says, "to pull a market out of the south of PJM and the west of Pennsylvania and put them somewhere else."

By that remark, Esposito emphasizes that much of the capacity available for import into the Northeast now resides in areas to the south and west of PJM, as well as in western Pennsylvania, which lies largely outside PJM borders. Some in Philadelphia noted that consolidation in the Northeast would leave those seams still intact, and Esposito agrees. As he explains, "Even if the three

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