Monday, December 11, 2006

The perils of electricity restructuring

Eleven years ago I was appointed by the government of Israel to head a task force to propose electricity restructuring in Israel. The task force proposed legislation intended to break up the vertically integrated monopoly and eventually to privatize the separated parts.

The struggle between the government and the union of electricity union started immediately. While I was testifying in the Parliament's economics sub-committee a group of labor leaders were outside the room sending messages to the politicians inside. The reforms were postponed for 10 years and then for another year. Now the time has come to implement.

During the first stage of the reform, the electricity system will consist of 4-5 generation companies, all subsidiaries of Israel Electricity Corporation (IEC), 3-4 regional distribution companies, also subsidiaries of Israel Electricity Corporation and one transmission company. The question that is being debated in Israel concerns the nature of the transmission entity.

A variety of models exist in the world. TRANSCOs are transmission companies that own the wires. In some places these companies manage the wires business, including the dispatch of electricity and the congestion that sometimes occurs in the wires. Transmission System Operators sometimes are TRANSCOs and sometimes they do not own the wires. In such cases they are called Independent System Operators (ISO).

The legislation proposed that in Israel there should be an ISO. If we want to create some measure of competition among the generators in a wholesale market we need to have a level playing field and the ISO should be separated from the rest of IEC. We should follow the good examples of Alberta in Canada and of Norway.

For a non-technical review of such issues you may wish to look at my somewhat outdated book:

Czamanski, D. Privatization and Restructuring of Electricity Provision, Prager, Greenwood Press 1999.

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