Frontlines

The ISO graples with the politics of scarity.

In regions that have embraced electric industry restructuring, such as New York, New England, and the mid-Atlantic states, where independent system operators (ISOs) have taken over and the standard market design (SMD) has grabbed a foothold over bulk power transactions, one fascinating question still dogs theorists and policymakers alike:

Is a power supply shortage really all that bad?

For more than a century now, the typical power industry engineer has dedicated his life's work to guaranteeing freedom from blackouts for every man, woman, and child, to a certainty that approaches five "nines" to the east of the decimal point. And the engineers have largely succeeded.

But the SMD puts little faith in such efforts. It relishes abundance and scarcity in equal measure, as it weighs the contrasting forces of supply and demand to reveal the energy price and clear markets. During those brief intervals of greatest demand, it relies on gas-fired turbines to supply power to serve the peak. But those turbines seldom run except during periods of extremely high prices. In fact, they cannot recover their fixed costs and high operating costs without the sort of price spikes that scarcity can produce.

The SMD won't work without scarcity, but regulators and politicians cannot survive in a world where they cannot protect ratepayers and voters from high power prices.