The most important item on the electricity policy agenda is a little-known proposal by the U.S. Federal Energy Regulatory Commission (FERC) to impose a nationwide Standard Market Design (SMD) on the electric power industry. If adopted, warns economist Thomas M. Lenard, SMD will make the American electricity system more vulnerable to failure, because it is based on the flawed premise that the government is better equipped than the private sector to fix broken markets.
California, for instance, adopted a plan approved by FERC beforehand. Despite its obvious flaws, the California market design was allowed to persist until it virtually bankrupted all the state’s utilities. Then it was “fixed” by shifting enormous costs to taxpayers.
Among other reasons to be concerned about FERC’s proposal, according to Lenard:
The energy bill under construction in Congress should at least delay implementation of SMD. “Congress,” Says Lenard, “needs to tell FERC to go back to the more-modest, less-prescriptive course it was on before.”
Source: Thomas M. Lenard (Progress & Freedom Foundation), Power Repair Misfits, Washington Times, October 3, 2003; see also Thomas M. Lenard and Anthony G. Schuster, Comments on the FERC’s Wholesale Market Platform, White Paper, August 14, 2003, Progress & Freedom Foundation.
For text http://www.washingtontimes.com/commentary/20031002-084027-2296r.htm
For transcript of PFF Congressional Seminar http://www.pff.org/publications/pop10.16energypostblackout.pdf
For PFF White Paper http://www.pff.org/publications/lenardschuster081303.pdf
FMF Policy Bulletin\7 October 2003
