A Wholesale Pool Spot Market Must Be Administered by the Independent System Operator: Avoiding the Separation Fallacy

Abstract:

Excerpt from the Introduction:

The notion of an Independent System Operator (ISO) has gained some currency in discussions of electricity market restructuring. There are significant advantages in this approach, but the key to success will be in a careful specification of the functions and responsibilities of the ISO. Simple independence of the individual participants is not enough; the ISO should support an efficient, competitive market. There is wide recognition that there must be a system operator coordinating use of the transmission system. This control of the use of the transmission grid means control of the dispatch, at least at the margin, because adjusting the dispatch is the principal (or, in some cases, only) means of affecting the flow of power on the grid. That this system operator should also be independent of the existing utilities is attractive in the greater simplicity of achieving equal treatment of all market participants. The ISO would be providing a service, but would not be competing in the energy market. Hence, the easy-to-state but hard-to-enforce principle of comparability would be transformed into an easier to enforce principle of non-discrimination.