The Surprisingly High Cost of Regulated Monopoly Power Markets

Michael Giberson

Gunnar Birgisson, at Bracewell & Guiliani’s Energy Legal Blog, writes that customers “aren’t happy with the high and rising operating costs of organized electric markets, including Regional Transmission Organizations and Independent System Operators.” Birgisson points out two developments – one at PJM and the other at ISO-New England – illustrating the current state of the regulatory debate. Long-time FERC watchers will recall that there is an open rulemaking docket concerning RTO/ISO cost accounting and oversight (Docket No. RM04-12-000).

I object to the term “organized electric markets”? The implication – unintended perhaps, but there nonetheless – is that trading in power at NYMEX and the IntercontinentalExchange is, what, “disorganized”? A better term for the electric power markets operated by RTO/ISO would be “grid-integrated electric markets,” (or more simply “integrated electric markets”) because the distinctive feature is that the results of the market are integrated with operation of the transmission grid.

Or perhaps, reflecting the quasi-monopoly status the entities have over access to the regional transmission system, maybe the term should be “monopoly power markets.” At least then no one would be surprised by the tendency toward ever higher costs.

“Tendency” is not destiny, however, as PJM has now committed to a fixed annual fee, starting at 33 cents per MW-hour and dropping in steps to 30 cents per MW-hour in 2011.

One thought on “The Surprisingly High Cost of Regulated Monopoly Power Markets

  1. Mike,

    Surely demands for increased reliability since the Northeast blackout, combined with the need to negotiate public convenience and necessity with multiple regulatory bodies, combined with the need to negotiate funding with the multiple entities which actually own the assets, plus the need to increase the sophistication of the grid to deal with larger numbers of less reliable generators, including intermittent generators such as wind turbines has had no impact on the cost of ISO/RTO operation.

    I can only imagine the intensity of the turf battles which must be occurring. Convincing one state regulatory body that its ratepayers must pay increased costs as a result of reinforcement or expansion of the ISO/RTO grid in another jurisdiction must be daunting.

    Increased reliability for all, combined with RPS, will not be cheap. We’d better get used to it.

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