Control and Governance of Transmission Organizations in the Restructured Electricity Industry

Abstract

The electricity industry, the nation's largest, is in the process of restructuring itself, replacing vertically integrated state-specific regulated monopolies with independent firms competing in regional markets. The Federal Energy Regulatory Commission (FERC) has wisely chosen leadership over command for its role in this restructuring. In a broad restructuring regulation, it directed the industry and state regulators to develop new industry designs. These designs must meld competitive generation and marketing segments with a necessarily monopolistic bulk transmission segment. FERC is now engaged in the process of facilitating the development of independent, regional transmission organizations (RTOs). This article examines alternatives for the structure and governance of those organizations. It supports FERC's choice of a regional approach and confirms FERC's authority to order regional organizations, if necessary. It discusses the choice between investor owned and independent models, finding that the independent model offers several advantages and presents fewer dangers than for-profit RTOs. It suggests RTO governance designs, which will be sensitive to the various stakeholders, regulators (federal, state and local), and the other segments of the electricity industry. Lastly, it urges special attention to the design of the dispute resolution processes which will handle the conflicts inherent in a disaggregated electricity industry. Among other things, it suggests that FERC play a leading role in developing ADR processes, including the creation of an independent pool of private ALJs who are expert in the electricity industry.