TY - CONF T1 - Governance Structures for an Independent System Operator (ISO). Y1 - 1996 A1 - Hogan, William W. A1 - Janelle Schmidt A1 - Carrie Cullen AB -

In April of 1996, the Federal Energy Regulatory Commission (FERC) adopted its initial rules to support competition in the wholesale electricity market. The FERC called for open access and non-discriminatory transmission services. Public utilities would be required to file tariffs which would allow others to have equal access to the transmission grid. In addition, the rule emphasized a standard embraced by FERC which would require all transmission owning utilities to provide all actual or potential transmission users with "comparable" service on the transmission grid. Subsequent to its initial notice of a proposed rulemaking, commonly known as the Mega-NOPR, the concept of creating an independent system operator (ISO) arose as an approach to providing non-discriminatory access to the transmission grid. In its order, the FERC included a discussion of the emerging initiatives to create independent system operators, but stopped short of making an ISO mandatory. However, the FERC advanced a set of principles which extended the discussion.4 Coupled with the growing number of proposals for an ISO, there is an increased interest in the associated governance issues.

The notion of an ISO offers an alternative that advances the FERC view of restructuring and could alleviate many of the difficult problems in providing open transmission access as part of the restructuring of the electricity market. There are significant advantages in this approach. There is wide recognition that there must be a system operator coordinating use of the transmission system. That this system operator should also be independent of the existing transmission owning utilities and other market participants is attractive in its simplicity in achieving equal treatment of all market entities. Hence, the easy-to-state but hard-to-enforce principle of comparability would be transformed into an easier to enforce principle of nondiscrimination. However, the precise goals, criteria and options for the ISO are not well understood or well posed. The tension is clear: the ISO should be independent but also responsive; stable but also flexible; limited but also substantial. The scope of responsibility, rules for operations and decisions on who should decide define an agenda of important details that are being examined or overlooked, decided explicitly or adopted implicitly in intense parallel conversations in different regions of the country. An investigation of the governance, scope and rules for the ISO presents an opportunity to unify seemingly independent conversations that are or should be about the same thing, namely how to deal with the special characteristics of electric networks in order to support a competitive electricity market.

The purpose of this background paper is to provide an overview of the basic governance discussion and illustrate the range of proposals that are under development in various regions and electricity markets.

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