ISSUE #4: Transmission operation and regulation

The MPSC Staff Report discusses many transmission operation and regulation issues at length. Two issues in particular are worthy of focused discussion—the establishment of an Independent System Operator (ISO) and the question of how to deal with reciprocity concerns.

The MPSC Staff Report is to be commended for recommending, but not mandating, the establishment of an Independent System Operator (ISO) for the state of Michigan. An ISO would be an independent entity that manages the electrical transmission system in a given region in a nondiscriminatory manner. An ISO would also be responsible for the reliability and quality of its regional power grid.

The ISO model is attracting the support of many industry officials and experts who are recommending such a mechanism as the solution to the many grid management concerns. While it is certainly a viable option, it would be a mistake for the MPSC or any regulatory body to preemptively mandate a single transmission system or structure. Instead, regulators should allow market participants to voluntarily work together to establish efficient regional transmission systems, and merely provide assistance when it is deemed appropriate. It is important to note, however, that most ISOs would be regional in scope, meaning they would be beyond the jurisdiction of the Michigan PSC.

A closely related transmission issue which the Commission deals with is that of reciprocity. Reciprocity in the delivery of electrical service essentially means carriers operating in different geographical regions should have comparable opportunities to compete in each other’s territory. Essentially, the MPSC wants to make sure that as the regulatory walls surrounding Michigan’s monopolistic service territories fall and new rivals seek to enter each other’s turf, they can do so on equal terms. While the MPSC can guarantee such reciprocity on an intrastate basis, it is much more difficult to deal with interstate reciprocity concerns. In other words, what happens if Michigan’s market is opened before Ohio’s and an Ohio utility can offer service to Michigan citizens but a Michigan utility cannot provide electricity to Ohio residents?

Clearly, this a serious concern and one that requires the attention not only of Michigan policy makers, but also federal officials who have jurisdiction over such matters. If the state of Michigan attempted to resolve every reciprocity dispute on a bilateral basis, it would require far too much time and hassle and only delay the benefits of competition for in-state consumers. Instead, Michigan policy makers should work with the Federal Energy Regulatory Commission (FERC) and federal officials to establish a multilateral approach to free trade in electricity. Since the FERC has jurisdiction over such issues, this will probably occur at some point in the future as an increasing number of states plan to open their borders. Yet, Michigan should work in conjunction with the FERC and federal policy makers to resolve interstate reciprocity matters on a timely basis so a harmonious, competitive nationwide electricity market can develop more rapidly.

Recommended Action #6: Do not preemptively mandate a single transmission system or structure on the industry. Allow market participants to voluntarily work together to establish an efficient regional transmission system.

Recommended Action #7: Work in conjunction with the FERC and federal policy makers to work out interstate reciprocity concerns. Allow for some federal role in this process to ensure the harmonious development of nationwide competition.