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November 8, 2002
CONTACT: David Fish
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The Deregulatory Paradox
Can FERC 'Deregulate' by 'Designing' Electricity Markets?

WASHINGTON, D.C. - Call it the deregulatory paradox: Federal energy regulators say they want to deregulate and bring competition to electricity markets, but their elaborate blueprint for doing so prescribes about 600 pages of new rules. Is the FERC’s Standard Market Design plan too prescriptive? Could the goal be met by less regulatory means? Those and other questions are discussed by a panel of experts – including FERC Chairman Pat Wood, III – in a paper released by The Progress & Freedom Foundation.

“Electricity Deregulation: How Prescriptive Should the Rules Be?” includes the transcript of a discussion also featuring Tony Alexander, president and COO of FirstEnergy, Ray Gifford, chairman of the Colorado PUC, Ken Gordon, former chairman of the Maine and Massachusetts utility commissions, and Jim Kerr, member of the North Carolina commission. The following are key comments, including those of PFF Senior Fellow and VP for Research Thomas M. Lenard, who moderated:

Lenard: “On the one hand, we’re trying to bring competition to these markets, and on the other hand we’re engaged in an exercise of designing electricity markets. The California experience brought home the very large costs associated with competition plans that are deregulatory in name only, and that rely on a mix of markets and government mandates that yield unpredictable and sometimes disastrous results.”

Wood: “What we want to do is lay down the foundation, the wholesale power markets, so that customers and their regulators can get the economic benefits…Whether that is distributed by the market, as it is in unbundled states, or by the regulator, as it is in bundled states, to me, is immaterial.”

Alexander: “In this effort, which at times seems to focus more on creating a successful financial market, we cannot allow reliability of the systems to be compromised. Nor is there any assurance that overly prescriptive rules or standardization will deliver real benefits.”

Gifford: “What I fear that SMD may be doing is cementing the current industry structure in place through regulation…I don’t want us to unnecessarily limit the long-run efficiencies that we’re seeking through restructuring in exchange for some short-term stability.”

Gordon: “This is an enormous undertaking and a grand design…It also appears to represent a massive shift in the institutional and legal structures. And if it’s not done well, it could lead to instability and unpredictability, which will harm the goals the FERC is trying to pursue.” Kerr: “FERC’s SMD may be an attempted cure for ills that exist in other regions, or more specifically for the 15 states that have retail competition. But it’s not an appropriate solution for whatever the issues are…in the remaining 35 states.”

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