Lessons from the History of Independent System Operators in the Energy Sector, with applications to the Water Sector

Michael Pollitt

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper examines the lessons from independent transmission system operators in energy in the context of the potential introduction of an independent system operator in the water sector. A key lesson from the energy sector is that there is a basic choice between having an independent system operator (ISO) and an independent transmission system operator (ITSO) covering two or more existing company areas. ISOs do not own any wires or pipes, ITSOs do own wires or pipes. We begin by examining the nature of system operation arrangements in different countries, focussing on different ways that non-discriminatory access to monopoly transmission assets can be facilitated. We go on to discuss the particular functions of the ISO, focussing on the US, with regard to controlling the system and operating the power markets. We also detail the costs of system operation. Next, we focus on incentive issues and the governance of ISOs around the world. We outline an ideal model for an electricity system operator and examine the extent to which systems in the US and UK conform to the ideal. We also explore the issue of pricing access to the system and how system operation costs are paid for. Then, we look at the evolving role of system operators and how they might be evaluated. Finally we apply the learning from system operation in energy across to the UK water sector and offer some interim conclusions.

Keywords: independent system operator; electricity transmission; gas transmission; water supply (search for similar items in EconPapers)
JEL-codes: L23 L51 L94 (search for similar items in EconPapers)
Date: 2011-08-24
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Lessons from the History of Independent System Operators in the Energy Sector, with applications to the Water Sector (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1153

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