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November 18, 2002
CONTACT: David Fish
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Lenard Warns of Harmful Effects of FERC Regs
PFF Economist Files Comments on Standard Market Design

WASHINGTON, D.C. - A plan by federal regulators to radically restructure the electricity industry is so detailed and intrusive that it amounts to “centralized planning” and “will be susceptible to serious flaws.” That is the public warning issued to the Federal Energy Regulatory Commission, which wrote the proposal, in comments filed with the agency by Progress & Freedom Foundation economist Thomas M. Lenard. He suggests a more targeted, market-based approach.

FERC’s plan “would radically restructure the electricity industry, placing billions of dollars worth of transmission assets under the control of non-profit, quasi-regulatory entities,” Lenard writes in comments on the agency’s Standard Market Design Notice of Proposed Rulemaking. “The day-to-day operation of power markets would be tightly regulated, and virtually all long-run investment decisions – for both transmission and generation – would be under the control of planning processes and institutions mandated by the NOPR.” In addition, the “pervasive planning regime” will produce “politicized decision-making, not competition, and there is no guarantee it will improve on the traditional regulatory regime it is designed to replace.”

According to Lenard, the already robust wholesale market for electricity proves “there is already relatively open access to large parts of the grid.” Otherwise, companies would not have built or purchased independent generation to such a degree. In fact, he maintains “growth of wholesale power has been comparable to the growth of the long-distance telephone market after the AT&T breakup in 1984,” which was “a major deregulation success story.”

In addition to exempting public power, which Lenard argues makes a standard market impossible and “imposes a ‘tax’ on private power,” the FERC plan raises incentive and accountability problems, as well as making it “much more likely that decision-making will be guided by political than by economic-efficiency considerations.”

Lenard released a paper last month, “Electricity Deregulation: How Prescriptive Should the Rules Be?” that includes the transcript of a roundtable discussion featuring FERC Chairman Pat Wood, III, 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 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