Contract Networks for Electric Power Transmission

Abstract

The electric utility industry has entered a new era, one characterized by competition between utility-owned and independent power, by long-term movements of power from one region to another, and by the development of short-term markets in which many buyers shop for the lowest-cost power.⁴ The greater use of market forces, encouragement of new suppliers, and increasing reliance on economy power sales, plus recent precedents in power company mergers, have placed new demands on the electric power transmission systems throughout the world. Efficient use of the transmission system in a market context calls for changes in the institutions that govern transmission transactions. In the United States, “the most debated public policy issue involving the electric utility industry of the 1990s will likely be that of transmission access and the use of the bulk power system” (“Transmission,” 1990, p. 12).

This is an abridged version of (Hogan (1992a)). Thornton Bradshaw Professor of Public Policy and Management, Kennedy School of Government, Harvard University, and director, Putnam, Hayes & Bartlett, Inc., Cambridge, MA. I have benefitted from repeated conversations on transmission pricing with members of the Harvard Utility Forum, colleagues and clients at Putnam, Hayes and Bartlett, and many others including Robert Arnold, Homer Brown, Douglas Bohi, Roger Bohn, Bernard Cherry, Charles Cicchetti, Ron Clark, Gordon Corey, James Cunningham, Charles Davies, Ken Fleming, Richard Flynn, Mark Friese, James Groelinger, George Gross, Kenneth Haase, George Hall, Steve Henderson, Steve Herod, Eric Hirst, Terry Howson, Robert Irwin, Joseph Keppinger, Henry Lee, William Lindsay, Cathy Mannion, David Marshall, John Macadam, James Malinowski, John Meyer, Thomas Milburn, Ray Orson, Howard Pifer, Douglas Powell, Martin Rosevear, Bart Smith, Charles Stalon, Irwin Stelzer, Donald Stock, Hodson Thornber, and Max Wilkinson. The idea of using contract networks for defining long-term rights grew out of intensive discussions with Sarah Johnson, Thomas Parkinson, Larry Ruff, and Michael Schnitzer. Support has come in part from the Harvard Utility Forum. The author is a consultant on electric transmission issues for Duquesne Light Company, the British National Grid Company, and Electricorp of New Zealand. The views presented in this chapter are not necessarily attributable to any of those mentioned, and the remaining errors are solely the responsibility of the author.

Everybody talks about the weather, but nobody doen anything about it.³