Excerpt from the Executive Summary:
As part of electricity restructuring in the United States, there is broad interest in the concept of an independent transmission company (ITC) that would operate as a standalone, for-profit transmission business. The Federal Energy Regulatory Commission has encouraged ITCs by offering to consider incentive rate mechanisms in conjunction with Regional Transmission Organizations that meet the requirements of Order 2000. However, the appropriate role of an ITC within the RTO framework remains unsettled. Some proposals would have the transmission company (Transco) be the RTO and perform all of its functions, even market operations. Hybrid proposals would have the Transco control some of the RTO functions but delegate the activities associated with market operations to a third party. This paper describes a third model, a marketcompatible ITC that would neither be the RTO nor assume the RTO’s public interest functions.
The for-profit nature of a monopoly Transco and its claimed ability to make efficient tradeoffs across market operations, system control, grid management and investment give the Transco its initial appeal. On closer inspection, however, the implications of these tradeoffs for market participants and concerns about leaving the RTO’s public interest functions distorted by the Transco’s private interests create a need to ensure independence for both system and market operations, so that functions necessary for an efficient market are performed in an unbiased manner.
Fortunately, the concerns with the pure Transco model do not foreclose a viable approach with for-profit ITCs that operate in conjunction with a separate and independent RTO. An ITC could complement the RTO but not be the RTO. It would respond to the market’s price signals to pursue market-driven grid investments, but it would not run the RTO markets. This ITC would be compatible with the Eastern markets that use coordinated spot markets, locational marginal pricing (LMP) and financial transmission rights (FTRs). Separating an ITC’s ownership/investment functions from the independent RTO’s system/market operation functions would allow both to pursue their respective objectives, but with the ITC free to aggressively pursue its private interests without concerns about biasing the market. It would then be simpler to ensure independent RTO governance and a focus on the limited but essential tasks that the RTO must perform. Within this open architecture, multiple transmission owners, both private and public, traditional utility transmission owners and ITCs, could then be accommodated without requiring the RTO to be the monopoly grid owner.