Did You Know

Top Energy Policy Experts Show Their Support
For Broader System of Regional Transmission Organizations

In published opinion editorials and testimony to Congress, a diverse set of senior energy policy experts are urging President Bush and Congress to support the Federal Energy Regulatory Commission’s (FERC) initiative to establish a national system of regional transmission organizations (RTOs).

Harvard professor William W. Hogan and MIT professor Paul L. Joskow, along with electricity and energy policy analyst Christine Tezak of Charles Schwab & Co., clearly state that only a regional organization can exercise proper oversight over a complex, interconnected regional electricity grid.

“One conclusion is evident: The electricity grid is highly interconnected and interdependent,” explained Hogan. “What happens in Ohio affects New York City, and vice-versa. Given this complexity, the electricity system requires carefully designed and consistent rules of the road governing use of the existing grid.

“Electrical engineers have long known this,” Hogan said, “but the political and commercial classes have been wrangling over who should set the rules, and how.… Now we cannot fail to see that policies at the state level are not the answer. This is a federal issue.” (“Electricity is a Federal Issue: Fifty million people losing power should change the political game,” The Wall Street Journal, Aug. 18)

“The Federal government needs to be given primary regulatory and policy jurisdiction over the high voltage transmission facilities owned by private, public and cooperative utilities,” agreed Joskow in a separate document on the same subject. “Just as the FERC has jurisdiction over interstate natural gas pipelines it should have similar jurisdiction over the high voltage electric transmission network.

“This jurisdiction would cover the terms and conditions of access to the transmission network, the prices charged for transmission service, congestion management and transmission planning and investment, including siting of new transmission facilities,” Joskow said. (“The Blackout,” Aug. 17, available at http://econ-www.mit.edu/faculty/index.htm?prof_id=pjoskow&type=paper)

Joskow also urges that RTO membership be mandatory.

“All transmission owners—private, public and cooperative—must be required to join multi-state independent RTOs with geographic boundaries that reflect natural regional power market areas,” Joskow said. “FERC should then devolve to these RTOs the implementation of as many of its policies regarding transmission operations, planning, investment and market monitoring as possible. The Bush administration should get behind its FERC appointees and support mandatory RTO formation and membership by all transmission-owning utilities.”

Finally, Joskow urges Congress to reject legislative attempts to deny FERC the flexibility needed to continue the transition to competitive markets.

“The provisions in the Republican-supported Senate energy bill that would limit FERC’s authority to reform wholesale power markets and transmission institutions are poorly conceived, anti-competitive, and will further undermine the smooth transition to well-functioning competitive electricity markets,” he said.

The investment community also has weighed in with support for a wider system of RTOs that would benefit our country through lower prices, increased investment in energy infrastructure and enhanced reliability of the electricity grid.

In her response to the House Energy & Commerce Committee, Christine Tezak urged Congress to support FERC’s initiatives.

“We believe that a regional program with active state participation overseen by a federal agency can provide sufficient regulatory clarity to foster higher levels of investment,” said Tezak. “Indeed, that is what the FERC’s RTO program intends. We view the sense of Congress in both House and Senate legislation supporting the FERC’s RTO efforts as a positive investment signal.”

However, Tezak says, “We see the Senate’s support for language that endorses the RTO program in one breath but then suspends its development for several years with the next as a mixed signal to the capital markets at best. As investors, we see how this may suit the business plans of a few industry participants but we do not consider such mixed signals as beneficial to a healthy, robust and varied electric industry. We also believe that continued delay of the RTO program perpetuates the current underinvestment in the grid and has negative implications for the overall economy.”

Tezak also said that attempting to return to cost-of-service regulation for power generation would hurt consumers.

“Continued regionalization through FERC’s RTO program may be a superior outcome for the consumer (both retail and businesses) relative to the proposition that old-style local service territories should be reconstituted,” she said. “We view going back to small service areas and putting generation assets back into retail rate base as the equivalent to advocating that businesses and individuals abandon the Internet because viruses exist.”

For more information, contact EPSA’s Gene Peters at gpeters@epsa.org or Andrea Spring at aspring@epsa.org, or call (202) 628-8200.