Electric power is one of the last major regulated industries to undergo some form of ―liberalization.‖ One of the most important steps has been creating regional transmission organizations (RTOs) in major regions of the country. RTOs are independent non-profit entities that operate utility-owned transmission networks. They are intended to increase competition and efficiency in the market for wholesale power, which should lead to lower wholesale prices. This paper tests whether RTOs have, in fact, achieved this goal. Our results indicate that RTOs have not lowered wholesale prices. Controlling for fuel costs and shares, and state- and time-specific factors, we find that prices in areas with RTOs have been higher than otherwise would have been the case. Our results also show that this outcome is not a reflection of initial market design flaws that subsequently have been corrected. RTOs that have been in operation longer have not as yet provided benefits in the form of lower wholesale prices.
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Thomas Lenard is Senior Fellow and President Emeritus at the Technology Policy Institute. Lenard is the author or coauthor of numerous books and articles on telecommunications, electricity, antitrust, privacy, e-commerce and other regulatory issues. His publications include Net Neutrality or Net Neutering: Should Broadband Internet Services Be Regulated?; The Digital Economy Fact Book; Privacy and the Commercial Use of Personal Information; Competition, Innovation and the Microsoft Monopoly: Antitrust in the Digital Marketplace; and Deregulating Electricity: The Federal Role.
Before joining the Technology Policy Institute, Lenard was acting president, senior vice president for research and senior fellow at The Progress & Freedom Foundation. He has served in senior economics positions at the Office of Management and Budget, the Federal Trade Commission and the Council on Wage and Price Stability, and was a member of the economics faculty at the University of California, Davis. He is a past president and chairman of the board of the National Economists Club.
Lenard is a graduate of the University of Wisconsin and holds a PhD in economics from Brown University. He can be reached at [email protected]
