In the United States, the Federal Energy Regulatory Commission (FERC) has undertaken the task of guiding the electric power industry from regulation to competition. But unless the FERC develops a plan to consider all facets of electric deregulation at the same time, we may end up driving on the wrong side of the road.
Last October the FERC issued its policy statement on electric transmission pricing. See, Inquiry Concern. Pricing Policy for Trans. Servs. Provided by Pub. Utils. Under the Federal Power Act; Policy Statement, Dkt. No. RM93-19-000, Oct. 26, 1994, FERC Stats. & Regs. (CCH) 31,005, 59 Fed.Reg. 55031 (Nov. 2, 1994). This document raises troublesome issues stemming from continued piecemeal deregulation. The time has come for the FERC to choose: Set transmission rates on embedded cost, or let utilities charge market rates. The FERC cannot legally continue forcing utilities to design transmission rates based upon either embedded cost or market, whichever is less.
Regulation vs. Market Pricing
Before considering the impact of the policy statement, let's look at the record of partial deregulation to date. The figure on the next page depicts the range of possible transactions for utilities buying or selling bulk power or transmission service at prices dictated by regulation (em prices that fall either above or below an unregulated market price.