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The Nation's Grid Chiefs: On The Future of Markets

Exclusive interviews with the CEOs of five regional transmission systems.

Fortnightly Magazine - October 2006

good mix of stakeholders to represent all sides?

Van Welie: Yes, but I don’t think any system is ever perfect. There have been calls by some parties to change the governance of the ISO. The LICAP debate brought out those calls. But typically those calls were made by folks who wish to control the independent decision-making process of the ISO. And that goes back to one of the basic principles. An entity is either independent and will act in a transparent way and make decisions in accordance with its mission—and that would be to ensure reliability and efficient markets—or a different type of entity would be created, which would be controlled by those that have a vested interest in the outcome.

Fortnightly: Do you think we’ll have some regions where we’ll never get an ISO or RTO? And how about the number of RTOs going forward—do you anticipate consolidation or multiplication?

Van Welie: On the first question, it depends on your time frame. If you project out 30 or 40 years from now, there will be some form of competitive market everywhere in the United States. But I don’t see it happening in the near term, and the status quo will prevail in the next five, 10 or 15 years. We’ve evolved about as far as we’ve been able to at this point. It would take a combination of national and state consensus to move forward, and we don’t have that at this point in time. I believe the evolution of wholesale markets across the entire footprint of the United States is about as good as you’re going to get right now.

On the footprint issue, the size of ISO/RTO is much more governed by regional interests at this point then the economies of scale of operating an ISO.

Fortnightly: And when you say “regional interests,” do you mean state regulators and legislators and so forth?

Van Welie: Yes. The regional stakeholders have a lot of influence over whether an ISO/RTO footprint can expand or not. We saw that very clearly when we explored the possibility of a three-way merger among PJM, New York, and New England, and later on the two-way merger between New York and New England.

Also, when you look at the price of an ISO in absolute dollar terms, it looks like it’s a lot, but when you look at it in the context of the market it is administering, it’s actually a very, very small number. Take the cost of the New England ISO: It’s essentially 50 cents for the average consumer per month. There is some economy of scale that could be realized if you were to combine the New England and New York operations, but it would only be realized if you are prepared to standardize the market. Regional stakeholders would have to be comfortable with the fact that they would have to give up their particular flavor of market design. And that, I think, has proven to be a very difficult thing to do. There’s just no desire or cost-benefit that regional stakeholders see

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