January 2002

Electricity Goes to Market

Continued from page 3

By Robert Pool

Transmission Transactions

As the grid is now set up, explains Marija Ilic, a power systems engineer in MIT's Department of Electrical Engineering and Computer Science, there are few economic incentives to invest in improving it. In some parts of the country, the local electric utilities own sections of the grid, while in other regions parcels of the grid are owned by private transmission companies. But in either case, Ilic says, tight regulation stifles innovation. The owners of the grid are guaranteed a certain rate of return on their investment, and decisions about building new transmission lines are typically made by systems operators (federal or state governmental entities, depending on the region), based on studies about which parts of the grid are most vulnerable to overload. The operation of the grid is, in other words, the regulatory system at its worst. There is no way to reward entrepreneurs who take chances and provide new or better services.