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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

ago, a lot of people would say that congestion costs are a lot higher. I think you need to realize in an organized market that what you’re seeing is the effect of higher prices for the underlying fuel, as opposed to a higher cost of energy because of congestion.

Fortnightly: You’re saying congestion is evidence of trade, simply the coin of the realm?

Lynch: That is one possible aspect. I don’t want to say that there are never reasons why you would want to alleviate congestion from a reliability standpoint. You need to analyze why, how, and what signals you are sending with the congestion—what is the result of that—before you arbitrarily assume that you have to alleviate all your congestion in the market.

Fortnightly: Going forward, what is your message to investors, and to Wall Street and the business community?

Lynch: Within New York, and I think it is true for the whole Northeast, we are going to be entering into less of a revolutionary phase and more of an evolutionary phase.

We just came out with a new standard market design last February. We have our demand curve in place [the ICAP capacity market]. We want to make incremental improvements and enhancements that are evolutionary and provide benefit to the overall market, but we don’t want to look at revolutionary changes that won’t provide regulatory certainty.

We want to make sure that the investment community realizes that we are looking at evolution at this point, not revolution.

 

T. Graham Edwards

President and CEO, Midwest Independent Transmission System Operator Inc. (MISO)

 

Fortnightly: It’s no secret that MISO is going its own way on the UCAP/ICAP/LICAP issue—that you’ve put out some white papers on the concept of an energy-only market. Why did MISO members decide to go a different route?

Edwards: As far as resource adequacy goes, I’m not sure there is a right or wrong way to approach it, or a right or wrong answer, from the perspective of what’s going to drive steel being put in the ground.

Theoretically the energy-only market provides a viable solution. But in reality, whether it will be allowed to work and be allowed to happen is a completely different question.

Will price signals be adequate to incentivize baseload generation and the required operating and spinning reserves? I am concerned that politicians or regulators will not allow prices to get to the point where they need to be to stimulate a baseload coal-fired or nuclear unit. Peaking units, yes. More demand-side response, yes. But the more hours in the year that you see prices at $1,000, $2,000, or $3,000 a megawatt-hour, I think the regulators are going to say that’s unacceptable; they are not going to allow that to happen.

I believe it is a responsibility of the states to determine what level of resource adequacy is appropriate. We will work with our Organization of Midwest ISO States (OMS), the regulators, and try to determine that level, not just on a state-by-state basis, but over our footprint as well. We are working with