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Don't Rush the Seamstress: Second Thoughts on the Marriage of the Northeast Grids

Why a standard design in each ISO is no guarantee of regional coordination.
Fortnightly Magazine - September 1 2001

many envisioned would have responsibility for overall reliability? Finally, we doubt that the new entity would have in place the right incentives to induce transmission investment.

We favor an inter-regional group, founded on profit.

You may wonder why we are asking so many questions. Don't we want to see progress?

Yes, of course, progress would be nice, but consider what can go wrong. So far, the restructuring process has featured a plethora of well-meaning, governmentally imposed, detailed solutions hammered out for the benefit of stakeholders, which, at best, have barely moved us in the direction of efficient, competitive markets, and, at worst, have led to economic and operational catastrophe. Now, could we come up with something better, a solution that utilizes market forces and considers technological limitations as well?

What we should do is encourage consumer choice, new technologies and timely progress. Now that may sound like apple pie, but it is not the current direction in which the industry is moving. To reverse the current trend, we propose that entrepreneurs form inter-regional transmission organizations (IRTOs). Does the country really need still another alphabet soup organization in the business? Judge for yourself.

The IRTO, as we envision it, would be a profit-making organization responsible for reliability within the entire region. It would act as a one-stop shop for those seeking to consummate transactions that require the user of more than one ISO or control area. The IRTO would serve as a market maker for implementing inter-regional transactions. The suppliers of the inter-regional delivery are the entities within the IRTO, and the users of the IRTO's services are those proposing the transactions, which would be implemented according to a well-defined contractual arrangement.

Technically, the IRTO would provide direct tie-line flow control between control areas in order to implement regional transactions. The IRTO arrangement would fully preserve the autonomy of the entities within its purview, giving those entities a choice of how much power to transfer and at what value. Some of the profit from transactions would go to transmission owners, who could upgrade their systems. Technically, we are proposing a minimal, information exchange-based market for facilitating delivery of inter-market transactions, with a hierarchical structure, with ISOs, transmission owners and control areas as fully identifiable members of the IRTO. 7,8,9,10

What makes this idea different from a big RTO, as envisioned in the northeast consolidation? Basically, the IRTO would not rely on uniform SMDs and/or committee work to manage inter-regional transmission. Coordination would come about largely through value-based signals between the IRTO and its immediate lower level (ISOs, control areas, transmission owners) and between the IRTO and its customers for inter-regional transmission. Each individual ISO or control area or transmission owner could decide how much transmission capacity to make available to the inter-regional users (at the expense of its own reliability margin) and at what price. Keep in mind, though, that the IRTO will have an economic reason to want to facilitate inter-regional transactions. It will make more money if it does so. Keep in mind, too, that sooner or later, somebody will have