Electricity Transmission and Emerging Competition

Fortnightly Magazine - July 1 1995
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Interesting times. Challenging times. Confusing times. The electricity industry and its regulators are now inextricably meshed in a tangle of interconnected reforms. With 50 states as laboratories, the process is accelerating. There is no going back. But which way is forward?

The old model of a closed system of vertically integrated electric utilities offering bundled service has been discarded in theory, and is being dismantled in practice. Consensus on a new model has not yet emerged. Parallel developments in FERC proceedings, state inquiries, and industry restructuring are lurching forward without recognizing fully how each part affects the others. There is a need for a greater sense of urgency here: Fundamental connections among several pieces of the overall puzzle must be recognized soon and incorporated in the reforms if the promise of open competition is to be realized, and the economic gains achieved.

The key lies in understanding the role of transmission and the requirements for efficient competition. The principal challenge today falls to the industry, and especially to the existing utilities. The FERC has broken through many barriers in its recent Notice of Inquiry (NOI) on alternative pooling institutions1 and its Notices of Proposed Rulemaking (NOPR) on stranded assets and transmission access.2 The various notices ask many questions and even suggest a few default answers. The FERC goes far (em perhaps as far as the FERC can go by itself (em but not far enough. The default proposals fall short of meeting the requirements for an open, efficient, competitive electricity market in a network.

Breakthrough or Breakdown?

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