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June 6, 2003
CONTACT: David Fish
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Electricity Policy Debate: Lenard v. Hogan
Duo Debates Standard Market Design in Energy Daily

WASHINGTON, D.C. - The debate over the Federal Energy Regulatory Commission’s Standard Market Design electricity transmission proposal rages on in the nation’s centers of policy thought as Congress considers whether it will derail, or at least delay, the controversial proposal. On one side is Bill Hogan of Harvard’s Electricity Policy Group, who is in favor of the proposal; on the other is Thomas Lenard, the Progress & Freedom Foundation economist. Their current venue is inside the pages of King Publishing’s respected Energy Daily.

On FERC’s SMD plan, Lenard is definitely a doubting Thomas. He believes Hogan’s position – “FERC Knows What To Do,” the title of the latter’s May 20 Energy Daily article – is risky and wrong. “It is hard to think of another example of a market that the government had attempted to design in anything close to the detail that is being attempted here,” Lenard responds in Thursday’s Energy Daily. “If the agency gets it wrong this time, as it has in the past, the next electricity crisis will affect the entire country, not just one region.” Lenard also takes exception with Hogan’s belief that “anyone who disagrees is ‘opposed to the objective of non-discrimination and open access to the transmission grid, the sine qua non of an efficient wholesale market’.”

According to Lenard, who is VP for research and senior fellow at The Foundation, FERC’s plan to place control of transmission assets under “quasi-regulatory” organizations would result in an unclear incentive structure, accountability problems and political decision-making. It would also do nothing to resolve – perhaps even increase -- bottlenecks by reducing incentives to invest in transmission. Finally, this “radical restructuring of the electricity industry” does not guarantee sufficient benefits to be worth the risk. Moreover, Lenard maintains that FERC “has already achieved substantial success in establishing a foundation for competitive wholesale power markets – which is the main goal of the SMD proposal.”

“The Senate [energy] committee did a good thing by preventing a major and potentially disastrous expansion of FERC’s authority,” Lenard writes. That language “should remain in the bill as it works its way through the legislative process.” The Progress & Freedom Foundation is a market-oriented think tank that studies the impact of the digital revolution and its implications for public policy. It is a 501(c)(3) nonprofit organization founded in 1993.



The Progress & Freedom Foundation