WASHINGTON, D.C. - In his testimony before a Congressional committee on Wednesday, Progress & Freedom Foundation economist Thomas M. Lenard drew a direct link between the interests of American small business and the defeat of a controversial set of electricity regulations being proposed by federal regulators.

Lenard said the Federal Energy Regulatory Commission’s Standard Market Design Proposal – a key topic of debate in House-Senate conference negotiations to produce a final energy bill – would not decrease the risk of future blackouts. In fact, Lenard told Congress the regulators’ “overly prescriptive approach” could render the supply of electricity less reliable, harming businesses and other customers.

“FERC’s SMD proposal is an attempt to radically restructure the electricity sector and ‘design’ electricity markets at a level of detail that is virtually unprecedented for any industry,” Lenard testified. “Fortunately, Congress, with the current energy legislation, is in a good position to tell FERC to step back, take stock and return to the more modest, less prescriptive course it was on before.”

To tailor electricity offerings and prices to small business, Lenard said markets in reliability would develop in a competitive environment. He suggested that different businesses can tolerate “different levels of reliability” and that “A market must have instruments available directly and in secondary markets to hedge risks for individual customers or aggregated customer groups who demand such products.”

Lenard said SMD “does not even standardize market design everywhere, because it doesn’t apply to public power entities.” As the result, it “may create opportunities for inefficient regulatory arbitrage between regulatory systems.”

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.