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February 27, 2002
CONTACT: David Fish
(202) 289-8928

FERC's RTO Cost-Benefit Analysis Falls Short
Lenard Says Agency Leaves Critical Questions Unanswered

WASHINGTON, D.C. - The Federal Energy Regulatory Commission’s (FERC) long-promised cost-benefit analysis of its controversial Regional Transmission Organization (RTO) plan fails to answer critical questions, according to Progress & Freedom Foundation Vice President for Research Tom Lenard. He attended the agency’s public session on the topic today and issued the following comments:

“Based on the presentation of the results at today’s Commission meeting, FERC’s cost-benefit study does not address the questions it purports to address. It simply assumes that all the efficiency benefits of electricity competition will flow from the establishment of RTOs. Thus, the estimated benefits of RTOs are really the benefits from competition itself. The study does not address the benefits and costs of the RTO form of organization relative to other ways of organizing the transmission grid or evaluate whether, in fact, RTOs are the best way of realizing the benefits of competition. These are the critical questions.”

Lenard assessed the FERC’s increasingly regulatory approach toward electricity transmission – which would divide the nation into a small number of RTOs and prescribe from Washington how they must operate – in his study, “RTOs, Market Power and the New Regulatory Agenda at the FERC.”

While he does not question the need for residual regulation of the transmission sector, Lenard’s study criticizes FERC for ignoring the “substantial success” of existing open-access policies, creating disincentives to invest in transmission and pursing without adequate study a mandated RTO framework that is “fundamentally flawed.”

“FERC’s current approach is to regulate its way to competition, but the actions it is taking are antithetical to that goal,” Lenard writes. “Instead, what is likely to emerge is a new regulatory regime, no better than the old one. If the agency won’t reverse course on its own, the Congress should step in and curtail its authority.”

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation