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Perspective

The ISO takes on critics of its new market design.
Fortnightly Magazine - September 15 2002

core of the MD02 design-are consistent with the designs of other successful ISOs and with the SMD.

A third fallacy is that MD02 abandons markets in favor of central control. The authors quote Williams Energy: "… the politically motivated ISO is seeking a full return to heavy-handed command and control regulation …" Patently false, unless Williams would assert that the eastern ISOs and the SMD are also "heavy-handed command and control regulation." Of course, in contrast to the ISO's original design, MD02 provides stronger incentives for behavior that supports reliable grid operation and stable markets, and better tools for the ISO to take corrective action when needed. Such measures are necessary to correct the "fatally flawed system" pointed out in another critical comment quoted above.

Budget and the GMC

The California ISO also takes great exception to many of the assertions in the article regarding the ISO's budget and grid management charge (GMC), which funds the budget. Nowhere in the article was it mentioned that actual ISO spending has declined. For 2002, the combined anticipated operations and management and capital budgets total $199.5 million, down from $209.5 million in 2001. While this does not include all items that comprise the ISO's revenue requirement, it does show that for the areas of spending over which the ISO has principal control, spending is down dramatically. Indeed, contrary to the alleged rancor reported by the article over the 2002 GMC case, the ISO recently has reached a settlement in principle with all parties in the GMC case. Constructive criticism of the GMC is expected and is appreciated by the ISO, and that is why the proposed budget is released for public comment before it goes to the FERC for review.

Regarding the headcount at the California ISO, also absent in the article was any mention of the breadth of responsibilities placed upon the ISO. In sharp contrast to the eastern ISOs and the historical central pools from which they evolved, the ISO has been asked since inception to develop, implement and evolve complex market and operational protocols that did not previously exist. Moreover, as noted below, with the onset of the 2000-2001 electricity crisis, the ISO has been forced to address, and be the primary source of information regarding, numerous federal and state investigations into the conduct of the market and market participants. Despite this onslaught of increased activity, the ISO has focused on reducing expenses. For example, over the past year the ISO has engaged in an aggressive contractor conversion effort. This has resulted in reduced employee expenditures-savings that come from transitioning the contractors, who performed much of the initial work at the ISO, to full-time permanent employees. At least half of the ISO's headcount growth from 2000 to 2002 has been related to these contractor conversions, which save an estimated $10,000 per position.

The complaint that the ISO is collecting too much revenue via the GMC is fundamentally incorrect. The ISO is a not-for-profit entity and has no incentive to overstate its revenue requirement. Any over collections do not go to shareholders-they are