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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

integrated, without transparency.

Fortnightly: Currently, at the ISO, do you hire a consulting firm for this?

Mansour: No, we have a market-monitoring (MM) unit inside the ISO that technically speaking, reports to the CEO but actually reports more directly to the board of governors. The unit is treated similarly to an internal auditor. Reports from the unit are not subject to the scrutiny of management, including the CEO. The MM unit monitors both the ISO’s activities and market activities, and provides reports to the board of directors. And if management has an opinion on the market-monitoring report, then management actually prepares a report to respond to it.

Also, we have a market surveillance committee, which is a committee of three professionals—actually, I would call them world-renowned experts. They oversee the market activities of the ISO, and they also provide comments on market monitoring findings. This committee reports directly to the board as well.

Fortnightly: Do you have any predictions about whether we will see new regional grid groups forming in the West anytime soon?

Mansour: In terms of a meaningful structure, along the lines of the model of the existing ISOs and RTOs, I think that what you see is what you get for the next 10 years or so. You may see some sort of ad hoc collaborative activities, with limited scope, depending on the need, but not in terms of a full-blown structure like what you see with the ISOs and RTOs of today.

Fortnightly: Are there any new chapters to the ISO story that we should mention here?

Mansour: You asked whether we might see more ISOs, especially as it relates to what happened in California in 2000/01. Well, you might be interested now to hear what California has achieved since then, in terms of creating value under the current ISO structure.

Fortnightly: Do you mean declining heat rates, or better plant availability factors?

Mansour: All of that. From year 2000 until today, California has added 14,000 MW of generation, within the state. So the notion that restructured markets do not invite investment is definitely wrong. Now there have been some plant retirements, which took away about 30 to 40 percent of the added amount, but the fact remains that we did attract much new investment since 2000/01.

On the transmission side, from 1998 until today, the ISO has approved some $6 billion of new investment. And by the end of this year that number will be closer to $8 billion. Of course we still need more, because California is the fastest growing economy, but this is a substantial amount.

Fortnightly: So California is no longer a no-build zone?

Mansour: Exactly. And consider prices. The market-monitoring unit conducted a study in which it took today’s wholesale power prices—both for the ISO market and for bilateral trading, short-term, long-term, everything —and normalized them for rising fuel costs and compared them to 1998. They found that today’s fuel-normalized prices are lower than in 1998. Again, the notion that restructuring doesn’t attract investment and causes prices to rise to high? That’s all