RECENT CONFERENCE on independent system operators held by the Federal Energy Regulatory Commission was, in many respects, a tremendous achievement. It is a testimony to this Commission that its members can muster the stamina to listen to one-and-a-half days of mind-numbing technical discussion of power technology and regulation.
Nevertheless, there is inevitably a misstep or two in these massive "hearing-thons." In this case, the discussion nearly went awry when it turned to comparisons between transcos and ISOs. Although several speakers and the chairman sought to set things right, some unfortunate misimpressions may remain.
The subject was opened when conference participants suggested that an investor-owned, transmission-only company would be preferable to an ISO in many respects. A transco would have no incentive to favor any generators, the argument went, and would therefore solve the problems of nondiscriminatory access, comparability, vertical market power and independent governance in one fell swoop.
Such companies also would want to "maximize throughput," said one speaker, as their revenues would presumably be recovered through a volumetric tariff. As profit-making entities focused solely on transmission business, transcos would prove innovative and efficient, allowing market incentives to replace regulation. Best of all, transcos sound simple (em far more straightforward than the complex FERC regulation that goes with today's ISOs.
All this begs the question: Should the commission put aside ISOs in favor of transcos as the new market model?