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

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  • Pollitt, M. J.

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.

Suggested Citation

  • Pollitt, M. J., 2011. "Lessons from the History of Independent System Operators in the Energy Sector, with applications to the Water Sector," Cambridge Working Papers in Economics 1153, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1153
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    References listed on IDEAS

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    Cited by:

    1. Melitz, Jacques, 2012. "A framework for analyzing language and welfare," CEPR Discussion Papers 9091, C.E.P.R. Discussion Papers.
    2. Nepal, Rabindra & Jamasb, Tooraj, 2015. "Caught between theory and practice: Government, market, and regulatory failure in electricity sector reforms," Economic Analysis and Policy, Elsevier, pages 16-24.

    More about this item

    Keywords

    independent system operator; electricity transmission; gas transmission; water supply;

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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