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April 4, 2002
CONTACT: David Fish
(202) 289-8928

Lenard Files Comments on FERC Policy
Agency's RTO Cost-Benefit Analysis is Criticized

WASHINGTON, D.C. - Progress & Freedom Foundation Vice President for Research Tom Lenard has filed official comments with the Federal Energy Regulatory Commission questioning the agency’s so-called cost-benefit analysis of its controversial Regional Transmission Organization (RTO) plan. Lenard writes that FERC’s document fails to meet minimal accepted standards for such studies, avoids consideration of critical incentive questions and “begs the questions of whether RTOs will in fact make electricity markets more competitive and efficient.” The agency “does not even define what an RTO is,” he maintains.

“The FERC study is seriously deficient, because it is not a cost-benefit analysis of RTOs,” Lenard writes in his FERC filing [Docket RM1-12-00, deadline April 9]. “It is essentially a study of the benefits of electricity competition. The FERC Economic Assessment simply assumes the efficiency benefits of electricity competition will flow from the establishments of RTOs and then goes on to estimate those benefits. Thus, the estimated benefits of RTOS are really the benefits of competition itself.”

He maintains that FERC does not compare the benefits and costs of the RTO form of organization to other ways of organizing transmission, show how its plan will help develop competitive markets, or address the incentive questions associated with separating ownership from operational control of economic assets. While he does not question the need for residual regulation of the transmission sector, Lenard 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.”

Lenard’s extensive work on the agency’s transmission policy, which includes a Progress on Point paper released last month, has generated considerable interest and elicited a public defense of the agency’s position by FERC Commissioner Nora Mead Brownell. An Inside FERC story on February 18 had Brownell responding to Lenard’s criticism and denying the agency had settled on an RTO plan.

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.



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