[BETA] Fortnightly

The appropriate role for ITCs is rather different-and maybe not as exciting-as the role ITC proponents seem to have in mind.

This article is a response to what TRANSLink sees as the "four key benefits the hybrid RTO/ITC structure envisioned by TRANSLink provides to electricity customers" in the MISO RTO where TRANSLink proposes to operate. Similar statements of the perceived advantages of ITCs (independent transmission companies) have been made before, particularly by National Grid USA, the ITC that was to be part of the proposed Alliance RTO. Such statements should be examined carefully in light of theory, experience, and FERC's Standard Market Design (SMD), to separate the clear benefits of ITCs from those that are possible-but-unproven, improbable, or even illogical.

TRANSLink CEO Audrey Zibelman's Perspective, published in the July 15, 2002 issue of Public Utilities Fortnightly, discusses the benefits that TRANSLink sees for its ITC, focusing on the unanswered-even unacknowledged-question that leaps from the pages of all ITC proposals so far: Just what will an ITC actually do, and how might it actually do it, in the context of the SMD? The benefits that TRANSLink sees for its ITC proposal are essentially the same benefits claimed by other ITC proponents. It is worth discussing these one by one.

TRANSLink's "Four Key Benefits"

Key Benefit 1: Focus on Transmission as a Business
This one is easy, at least at a high level. Of course it is a good idea for transmission assets to be managed by a for-profit company that sees transmission as its main business. Such a company: 1) should have profit incentives to build, maintain, and operate an economical and reliable grid; 2) should be an advocate for transmission solutions to system problems; and 3) should provide a fair return to investors. Such companies should and will be fundamental parts of the competitive electricity markets of the future-and the sooner, the better.

That said, it must be added that nobody has yet come up with a very good way to align the interests of a for-profit ITC with the interests of customers, the market, or society. TRANSLink, like other ITC proponents, suggests that ITCs will do the right thing if they have profit incentives to "increase the level of electricity flowing over the bulk transmission system." But if performance-based regulation of ITCs is to have the benefits typically claimed for it, something much better than this-and better even than the more sophisticated regulatory schemes that have been proposed and tried-will have to be found.

Key Benefit 2: System Planning and Expansion
This one is not so easy, at any level. According to TRANSLink, it "leads the planning process in its region" and "financing, siting, and constructing transmission within TRANSLink's footprint are left exclusively to TRANSLink." But why should transmission remain an unchallenged monopoly, when every other part of the industry is being subjected to competitive pressure as far as practical? The old natural monopoly argument is unpersuasive today, when generation and demand management compete directly with transmission as ways to maintain reliable and efficient operations, and when merchant companies are eager