amounts of power that must be moved between sellers and buyers in new competitive power markets have added complexity in the operation of the bulk power system.

•   Improving system reliability comes at a cost. Decisions to reduce the level of risks—through the adoption of stricter standards or through investment to protect against various types of risks—have to take into account (implicitly or explicitly) the question of whether the benefits of reducing a risk is worth the expense.

•   Typically, customers of electric service end up paying the costs for reliable operations, although non-customers also may benefit if there are external social effects or broader macroeconomic consequences. These aspects of reliability concerning the public good, including increased immunity from terrorist attacks, cannot be properly accounted for through market-based supplies of electricity, and standards must be set and enforced by a central authority such as the ERO. Once those supply standards are set, their actual provision can be decentralized through markets if the proper payments are made to the providers.

•   As with all public goods where different individuals receive different levels of service or value reliability differently, who pays what is a contentious issue. Questions of fair cost allocations are one reason that investments in strengthening the transmission grid have lagged in many regions of the country. A compounding factor is the continual political pressure to keep electricity rates low, despite the demands by some customers for higher power quality and reliability.

•   One mandate of the ERO is to establish regional advisory boards that might coordinate the different political perspectives of federal, state, and local governments and their regulatory bodies, but how that dialog is translated into capital investment and revised operating practice has still to be worked out.


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