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Ocobter 18, 2002
CONTACT: David Fish
(202) 289-8928

Feds Pursue Command-and-Control Electricity Policy
Lenard in Regulation Magazine: "FERC's New Regulatory Agenda"

WASHINGTON, D.C. - Federal officials seem to be turning to command-and-control policies for the nation’s electric power grid, according to a leading energy economist, who writes that the Federal Energy Regulatory Commission is pursuing “regulatory activism” with respect to both electricity transmission and the wholesale power market. In an article published in the new edition of Regulation magazine, The Progress & Freedom Foundation’s Thomas M. Lenard questions the wisdom of this new policy tilt, urging a reduction in government’s role.

“During the last year and a half, the FERC has embarked on a significantly more regulatory course than it was on before,” Lenard writes in Regulation. “FERC’s regulatory activism is occurring without sufficient analysis of whether the approach will improve the functioning of markets or be beneficial to consumers.” The question, Lenard writes, is “whether competition can be achieved by substituting a new regulatory regime for the old one – as FERC is in the process of doing – or whether competition requires reducing the role of government in the marketplace.”

Lenard maintains the regulatory approach is most evident in the area of transmission, where FERC “is moving aggressively to divide the nation’s power grid into a small number of quasi-government entities called Regional Transmission Organizations, and to prescribe in detail how [they] should operate.” In the wholesale power market, he says the agency is pursuing ‘market monitoring’ “that will place generators under the continuing threat of price caps, mandated refunds, and loss of market-based authority.”

Citing figures that show a “robust” wholesale market has developed in recent years, Lenard says “serious transmission bottlenecks” exist in all parts of the country, including where similar government entities exist already. This is due in large part to a lack of investment in transmission capacity; something he concludes will not increase, and very likely will decline, under FERC’s more regulatory regime.

Lenard and other experts raised these and other concerns at a PFF-sponsored roundtable discussion with FERC Chairman Pat Wood, III yesterday in Washington.

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