The diversity of design of TSOs

It is puzzling today to explain diversity and imperfection of actual transmission monopoly designs in competitive electricity markets. We argue that transmission monopoly in competitive electricity markets has to be analyzed within a [Wilson, R, 2002. Architecture of the power markets. Econometrica 70(4), 1299–1344] modular framework. Applied to the management of electricity flows, at least three modules make the core of transmission design: (1) the short run management of network externalities; (2) the long run management of network investment; and (3) the coordination of neighboring transmission system operators (TSOs) for cross-border trade. In order to tackle this diversity of designs of TSOs, we show that for each of these modules, three different basic ways of managing them are possible. Among the identified 27 options of organization, we define an ideal TSO. Second, we demonstrate that (1) monopoly design differs from this ideal TSO and cannot handle these three modules irrespective of the “institutional” definition and allocation of property rights on transmission, while (2) definition and allocation of property rights on transmission cannot ignore the existing electrical industry and transmission network structure: they have to complement each other to be efficient. Some conclusions for regulatory issues of TSOs are derived from this analysis of network monopoly organization.