"Infrastructure investment is a common focus of energy policies proposed for the United States. Initiatives to improve energy security, meet growing demand, or address climate change and transform the structure of energy systems all anticipate major infrastructure investment. Long lead times and critical mass requirements for these investments present chicken-and-egg dilemmas. Without the necessary infrastructure investment, energy policy cannot take effect. And without sound policy, the right infrastructure will not appear. Acting in time to provide workable policies for infrastructure investment requires a framework for decisionmaking that identifies who decides and how choices should be made."

Energy is important, but energy independence is a dangerous myth. The U.S. National Petroleum Council recently observed: "There can be no U.S. energy security without global energy security." Oil flows in a world market and events anywhere affect the price of oil everywhere. There is no escaping these oil price shocks. Even if the United States were to substantially reduce its own oil consumption, there would be no immunity from the effects of high world oil prices that would determine domestic energy prices and ripple through the world economy. Geology and politics make the world deeply interdependent and policy should be crafted to promote and secure energy interdependence. Real energy security comes from robust energy systems with diversity and flexibility, not through isolation and energy autarky.

These comments are submitted on my own behalf in connection with the Commission's deliberations on the "Federal Energy Regulatory Commission Working Paper on Standardized Transmission Service and Wholesale Market Design," (working paper) distributed March 15, 2002. Development of a standardized market design that can support a competitive electricity market is an important task that this Commission is right to undertake with vigor.

Physical transmission rights present so many complications for a restructured electricity market that some other approach is required. With a standard market design centered on a bid-based, security-constrained, economic dispatch with locational prices, the natural approach is to define financial transmission rights that offer payments based on prices in the actual dispatch.

In this paper we consider a supply function model of an electricity market where strategic rms have capacity constraints. We show that if rms have heterogeneous cost functions and capacity constraints then the dierential equation approach to nding the equilibrium supply function may not be elective by itself because it produces supply functions that fail to be non-decreasing.

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Electricity systems present complicated challenges for public policy. In many respects these challenges are similar to those in other network industries in providing a balance between regulation and markets, public investment and private risk taking, coordination and competition. As with other such industries, naturally monopoly elements interact with potentially competitive services, but electricity has some unusual features that defy simple analogy to other network industries.

Energy policy modeling owes a great debt to the disciplines of operations research. Valuable modeling tools were available when the energy crisis struck unexpectedly. In turn, the immediate response to problem-driven policy modeling produced methodological challenges and innovations that have application outside the domain of energy