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News Release
August 21, 2003
CONTACT: David Fish
(202) 289-8928

Electricity Plan:
Spur Transmission Investment, Delay SMD

Former Utility Regulator, Economist Say Abraham on Right Path

WASHINGTON, D.C. - In the wake of last week’s historic power crisis, a former utility commission chairman and a noted energy economist say key ingredients of any ‘fix’ must be a plan for increased infrastructure investment and a delay in the Federal Energy Regulatory Commission’s controversial Standard Market Design proposal. They say the very region FERC used as a model for the SMD plan may turn out to have played a role in the blackout and, thus, would be an unsound basis for national policy. They warn that moving forward with a flawed plan at this point raises the possibility that ” the next electricity crisis may affect the entire country, not just one region.”

Progress & Freedom Foundation President Raymond L. Gifford, the immediate past chair of the Colorado Public Utilities Commission, and Foundation Senior Fellow Thomas M. Lenard, an economist who has filed official comments on FERC’s proposals, released the following statement on Wednesday:

“Secretary Abraham seems to be on the right track in calling for incentives for infrastructure investments and for deferring consideration of FERC’s controversial market design proposal.

“It is generally accepted that the current allowed returns are insufficient to attract the needed capital for the electricity transmission sector to upgrade its transmission systems and expand capacity. In fact, the FERC itself acknowledged that ‘the existing transmission grid has fallen far behind the demands that have been placed on it.’

“While nobody understands precisely what happened during the recent blackout, we do know that it happened in the northeast quadrant of the country – the very region FERC used as its model in developing the SMD proposal. We need to be cautious and find out what really went wrong, but now would not seem to be the time to extend that market design to the rest of the country.

“FERC based its SMD proposal in large part on the designs in place in the midwest, mid-Atlantic (PJM) and New York market areas. In these areas, the transmission system is operated by non-profit Independent System Operators. FERC argues that ‘regional, independent operation of the transmission system with proven market rules in place, is the critical platform for the future success of electric markets.’ At this stage it is hard to argue that the market rules FERC is looking to are ‘proven.’ If this system is extended nationwide, the next electricity crisis may affect the entire country, not just one region."

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