Economics and the development of system operators in infrastructure industries

This paper discusses the role of system operators (SOs) in four infrastructure industries: electricity, natural gas, railways and water supply. It describes the types of system operator and their role as co-ordinating entities. The paper relates the role of SOs to the problems of economic discrimination that arise in partially or wholly vertically integrated infrastructure companies and the introduction of upstream competition over networks. The paper discusses short, medium and long-term issues that arise and indicates the relevant economic theory framework for tackling each of them as well. It also discusses the SO variants observed for the four industries in the UK, the US and the European Union, with their strengths and weaknesses.