Governance of electricity transmission systems

This paper examines three different governance mechanisms for electricity transmission systems. A regulated transmission company (“Transco”) solution suffers from the usual problems of regulatory slack in a natural monopoly. A not-for-profit independent system operator (“NISO”) solution solves the regulatory slack problem by being involved in the day-to-day operations; however, the NISO solution suffers from the problem that the NISO directors can become “captured” by industry, leading to inefficient outcomes. In contrast, a for-profit independent system operator (“PISO”) solves the regulatory slack problem and is not subject to political pressure from industry.