The Federal Energy Regulatory Commission has addressed a wide range of issues in its analysis of and request for comments on the design of Regional Transmission Organizations (RTO). The RTO NOPR covers a great deal, and says a great deal, going a long way in defining the minimum characteristics and functions that must be provided in support of an open, reliable, and robust competitive electricity market. However, the NOPR does not go far enough. As is perhaps inevitable in the process with a document intended to address so many contentious issues, some of the most important ideas of the RTO NOPR call out for further development and an unmistakable commitment. The key ideas are there, but they need greater emphasis in the design so as not to be lost in the blizzard of paper that will surely follow. The key ideas are there, but they need greater priority in the schedule so as not to be foreclosed by the unanticipated consequences of seemingly unrelated decisions.
While many other issues such as the form of ownership, governance structure, regional boundaries, independence of market participants, or incentive regulation can be significant, they should be fashioned nevertheless only in the service of well-designed market institutions. The fundamental guiding principle of RTO design should be to serve the public interest. A competitive electricity market can be the vehicle for pursuing that public interest, but only if the market structure addresses the particular characteristics of the electricity system with its complex mix of essential facilities and large network externalities. Importantly, the rules for access to essential facilities and pricing, to provide consistent and efficient incentives, are not mere technical details that can be deferred or left themselves to be discovered through the magic of the market.