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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

to invest more in technology to clean up their emissions—all of which will be reflected in the price of electricity bid from that unit. So the net effect over time will be increased wholesale electricity costs. However, because of the reliability constraints, I don’t think anyone will be so rash, as to stop importing coal-fired electricity from one day to the next.

Fortnightly: So your forward capacity market incentive is neutral on the question of fuels and emissions?

Van Welie: Yes, it’s designed as neutral. Obviously, resources that bid in to the capacity market will have to price in any and all constraints mandated at the state level. We’re procuring resources at the wholesale level, but the pricing is affected by where you intend to build, and what the state regulations are. It is conceivable to have a situation where someone wants to build something in one part of the system, but ends up not being competitive with resources available in another part of the system.

For example, if one state imposed very draconian environmental regulations, it would actually end up making the local resources less likely to clear in the auction. And so the interesting thing—and this is something that RGGI has thought a lot about, and why they’re trying to get all of the Northeastern states to sign up—is that you get the issue of “leakage.” How do you stop the electrons from coming in? A neighboring resource might be noncompliant, but the electrons come in anyway through the transmission lines. They just follow Kirchoff’s laws. What you’ve essentially done is you’ve moved the siting and/or environmental problem into somebody else’s backyard.

That issue is something that the states will have to work through in the RGGI process.

Fortnightly: ISO governance mystifies many people. Haven’t there been situations where the ISO membership votes against filing a new tariff, but the ISO management goes ahead anyway?

Van Welie: First, you should be aware that ISO New England has never gone against a majority vote, but we’ve gone forward sometimes without super-majority support. LICAP was a good example, where we went forward with a 59 percent level of support, where the governance called for a super-majority level of support, which was two-thirds.

Of course, the ISO is still accountable to FERC, its regulator, and to its stakeholders, through its stakeholder process. We have a very well defined governance process that commits us to take any substantial proposal to our stakeholder body for a vote and then deliver the results of that process to the FERC. So we’re transparent in everything we do. There is no decision-making behind closed doors. Everything is debated very thoroughly. The matter then goes to the FERC for review, and even if the FERC rules in our favor, opponents still have the option of going through the court system. The accountability comes through the stakeholder process, through the regulatory process at FERC, and, ultimately, recourse is available through the court system.

Fortnightly: Are you happy with the way the checks and balances play out? Do you have a