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CEIC-07-15

"Measuring the Benefits and Costs of Regional Electric Grid Integration "
Seth Blumsack

Abstract:
Ten years have passed since the process of electricity restructuring got underway in the United States. Whether the experiment has been successful is a highly controversial and hotly-debated subject, as are the next steps that policymakers should take. If restructuring and RTOs have been successful, then perhaps other regions should take the lead of PJM and the Northeastern United States. If restructuring has not been a success, then policymakers face a series of painful choices about whether further reforms should be enacted, or whether the entire system should be dismantled.

Successful design artifacts can only arise out of a good problem formulation. That is, the goals of the artifact must be precisely enumerated, a set of performance metrics must be defined, and most importantly, there must be a good verification process for ensuring that the artifact meets the specified goals. If electricity restructuring in the United States fails, it is not because of Enron or any other group of stakeholders, but rather because the markets and institutions emerged from a poor formulation of the problem that restructuring was supposed to solve. California’s doomed market was designed without sufficient input from experienced engineers; by default this yielded an incomplete set of performance metrics and a verification process somewhere between terrible and nonexistent. The current controversy over regional integration in markets and electric grids stems from a lack of clarity regarding the policy goals underlying restructuring. Whether lower prices for consumers, open access to transmission, or the promotion of markets itself is the ultimate goal is far from clear. Just as problematic as the lack of well-defined policy goals is the lack of well-defined metrics for verifying whether the policy goals have been met. Good metrics are objective, thorough, consensual, and are reflected in policy decisions.

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