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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

in going down that path.

If New England were to merge with New York, for example, the debate would be about which one of the two capacity markets you would want to implement. The simple answer is, I don’t see anything changing in RTO footprints anytime soon.

Fortnightly: How about an IPO? Will we ever see the day that I can go to my stockbroker and say, I want to buy 100 shares of ISO New England?

Van Welie: I don’t see it. It’s the same reason that caused stakeholders very strongly to want the ISO to be not for profit. I do see that what I call the “forward markets” will continue to evolve. Entities such as NYMEX will continue to develop products that are traded forward of the ISO markets. And in that world, you’ll get all kinds of different variations. We’ve seen that happen in Europe as well. But when it comes to the ISO, RTOs—the real-time operation of the grid and the pricing of electricity in the so-called spot market—I don’t see a great deal of change.

I have one other comment on this last point. If you look around the world, you’ll see different variations of the day-ahead and real-time spot market approach that we have in the United States, with an ISO or RTO running the markets.

For example, there’s the Transco model in the UK, where the grid operator is also the spot-market operator, and everything forward of real time is actually done by the exchange, which is a for-profit entity, outside of the RTO. Those models work as well, so the issue becomes, how much gain do you get changing from one model to the other?

Well, I don’t think it’s clear that you get any gain. But what is more important in the United States is stability.

 

Mark S. Lynch

President and CEO, New York Independent System Operator Inc.

 

Fortnightly: How is your ICAP (installed capacity) plan working in New York, since it doesn’t appear to have the same locational character as the LICAP (locational installed capacity) plan that was proposed in New England, or the RPM plan in PJM?

 

Lynch: First of all, the NY-ISO’s ICAP market is locational. We essentially have three specific zones: With Long Island, New York City, and then the rest of the state. We’ve actually had a locational market since we began.

Fortnightly: So you are as locational as you need to be?

Lynch: We believe that to be true. You bring up a good question when you ask about location and investment. The capacity market itself isn’t the only mechanism that sends locational signals. We use locational marginal pricing in the energy markets, in the day-ahead and real-time markets, and we actually think in New York that on the energy side, in conjunction with the capacity side, some very strong signals on investment have been sent.

Looking at the investment that has actually come into the market since our formation in 1999, we’ve had more than 5,000 MW of new investment, predominantly from

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