By all available measures, there has been dramatic growth in the competitive bulk power market over the past decade. Despite that success, FERC’s approach to both transmission and wholesale generation has recently become significantly more regulatory. The commission is retreating from market-based pricing for generation. With respect to transmission, FERC is proceeding on a path of imposing multiple new regulations simultaneously in an extremely complex area, without the benefit of any analysis to show that the new regulations are needed or that the benefits will outweigh the costs. Clearly, that is not a path that will produce much-needed incentives to invest in transmission capacity.
FERC needs to be much more attentive to the incentives of the institutions it is creating. If the commission does require membership in RTOS, it should do so in a very flexible manner. The design of an RTO (including geographic boundaries), the functions it should perform, and the way it should perform them are very complicated issues that should be permitted to evolve over time. FERC should allocate the minimum amount of functions to the RTO and permit independent transmission companies to develop under the RTO umbrella. And, to the extent that those entities are truly independent of generation, they should be subject to a much simpler regulatory regime and exempted from open-access requirements.
