Content area
Full Text
Power System Economics: Designing Markets for Electricity, by STEVEN STOFT, (IEEE Press/Wiley-Interscience Press, May 2002), 496 pages. ISBN 0-471-15040-1
How do you find the right answer to a market design question? At a recent meeting, the head of a major organization in the business of designing and implementing restructured electricity markets stated that it's whatever the stakeholders collectively decide.
This conception that there are no right answers known in advance is usually extended in one of two ways. There's the pessimistic view that market design choices are an exercise in pure political power by stakeholders and regulators. The optimistic view holds that somehow the process of consensus results in the best possible result. To the extent that these consensus discussions are guided by reason and evidence, business acumen or "many" years' experience (in a regulated world, of course) provides that kernel of intellectual insight that shapes the final outcome.
This is not to say that stakeholder input is not valuable or even critical to the design of markets. Stakeholders have specific insights, based on their business models, that Independent System Operators (ISOs) lack. They also have a vested interest in protecting their businesses - an important impetus for the prioritization of tasks and the type of market rules that are necessary. While ISOs are nominally independent of market participants, it would be naive, however, to think that they are completely objective or have no preferences, some of which may not be based solely on the social welfare goals of efficiency and reliability.
There is, however, some well founded cynicism about the ability to determine appropriate market design elements. It is based on years of hearing at least two sides to many issues articulated by well respected experts sponsored by...