MinISO: A Minimal Independent System Operator

The Independent System Operator or ISO is the lead actor in the various proposals for a deregulated, competitive electric power industry. The ISO has three possible objectives: security maintenance, service quality assurance, and promotion of economic e ciency and equity. To achieve these objectives the ISO may be authorized to set the rules for transactions between suppliers and consumers, scheduling and dispatch of generators, loads and network services, and energy markets. Proposals di er in their speci cation of the ISO's objectives and authority. Two ISO structures are contrasted. MaxISO, based on the UK-Poolco model, has ambitious objectives and much regulatory authority. Its scienti c merit derives from an Optimal Power Flow dispatch model. MinISO's objective is restricted to security, and its regulatory authority is correspondingly modest. MinISO seeks to provide direct consumer access. Its scienti c merit is based on the Coordinated Multilateral Trades model. By locating in the ISO both the transmission-security function and the generation-economic e ciency function, MaxISO ends up being a hindrance to structural reform. By separating those functions, MinISO maximizes consumer choice and technical and nancial innovation. The California PUC decision of December 1995 is, understandably, a compromise between the two proposals. The unexpectedly rapid response nationwide of utility and non-utility entities to the potential opportunities of a deregulated industry, however, threatens to make irrelevant the MaxISO model and to shorten the life of California's compromise decision. MinISO remains an option that is exible enough to accommodate the choices that consumers and producers may want.