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