Electric industry governance: Reconciling competitive power markets and the physics of complex transmission interconnections

Creating efficient, competitive power markets in an electric industry composed of interconnected control areas requires the existence of some agency with authority to define, impose and enforce rules for the operation of all control areas so interconnected. It has been noted that “the pursuit of self-interest, unrestrained by suitable institutions, carries no guarantee of anything except chaos”. In no part of the economy is this lesson more relevant than in the North American electric industry. As the industry evolves from one dominated by vertically-integrated utilities into one with competitive power markets and unregulated generators, the system of coordinating institutions that has worked acceptably well to restrain and guide self-interested decision makers of economically regulated firms must now be reconstructed to restrain and guide self-interested decision makers of unregulated generating companies (gencos), power merchants and brokers.