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Electric Restructuring: NOt by FERC AloneVito Stagliano

Fortnightly Magazine - October 15 1995

the transmission system from the transaction or the need to enlarge transmission facilities. But such costs are to be recovered from the applicant seeking transmission service (em not from the utility's existing wholesale, retail, or transmission customers.3 The Act further declares: "No order . . . shall require transmission of electric energy 1) directly to an ultimate consumer, or 2) to, or for the benefit of, an entity[,] if such electric energy would be sold by such entity directly to an ultimate consumer."4

The requirements of EPAct are difficult to reconcile with those of the FERC's proposed rule on transmission access and stranded costs. Congress neither considered nor debated the possibility that EPAct would be used to fundamentally restructure the industry, that the transmission access provisions would be carried out en masse, or that the Act would engender stranded costs. Its final vote was based on the assumption that, "On a case-by-case basis, utilities may be required to allow their competitors access to their transmission lines."5


If the FERC wishes to assume the policymaking authority abdicated by the Department of Energy, it must also assume the associated duties.6 True reform (em whether in function or structure (em cannot by any definitional stretch be accorded the status of a mere rate case. The change being contemplated has, rather, all the elements of a new national electricity policy, the achievement of which is as dependent on reform of the regulatory structure as it is on reform of the regulated. What should emerge from the process is not merely a new set of FERC rules, but a revitalized industry subject to the discipline of market competition and overwhelmingly free of government control, except where such control is absolutely justified by residual monopoly functions.7

An effort to craft national policy would require the commissioners at the FERC to step down from their quasijudicial bench, suspend the present proceedings, and embark on a consensus-building process whose results would be subsequently codified into law by Congress. The FERC could undertake this effort within the framework of a regulatory negotiation process that, among other features, would bring the system's key stakeholders to the table as equal players.

The negotiations would fashion a truly competitive new industry free from manipulation for unrelated social purposes or preferences for discrete sets of competitors. The process would optimally create a deregulated generation function, and a transmission market with nondiscriminatory access, operated under unified federal/state regulation via regional transmission groups, as Congress intended. And it would set ground rules to govern the transition to retail wheeling to avoid the chaos inherent in the prospective actions of 50 distinct state commissions, acting separately and with limited regard for multistate pooling and operating structures.

The restructuring agenda is complex; the economic stakes are high; the policy consequences serious. The nation therefore deserves better than the piecemeal, incremental, trial-and-error methods that now dominate. The FERC can exercise leadership, or it can proceed with traditional command-and-control measures that will engender a decade of uncertainty and virtually certain litigation. t

Vito Stagliano, a visiting scholar at