FERC must align the immediate self-interest of profit-maximizing entities with its own view of what is in the public interest.
James J. Hoecker and Stephen Angle are partners in the energy group of the Washington, D.C., office of Vinson & Elkins LLP. Previously, Hoecker served as chairman of the Federal Energy Regulatory Commission. He was a member of the commission from May 1993 until he was designated by President Clinton to chair FERC on June 19, 1997. He also was assistant general counsel for gas and oil litigation at FERC. Angle served for 13 years as FERC’s assistant general counsel for hydroelectric and electric litigation. Contact Hoecker at email@example.com, and Angle at firstname.lastname@example.org.
The utility industry is operating amidst a hodgepodge of market and non-market regulatory arrangements, but these quasi-competitive circumstances, even if politically tolerable, will prove economically inefficient and therefore detrimental to consumer interests. How can real markets promptly and responsibly be advanced? We see two main challenges.
The first challenge is to reverse a long-term underinvestment in transmission infrastructure. Although the nation's high-voltage electric transmission network properly is viewed as a "public good," investment in the grid is, and long has been, in trouble. The current uptick in construction of (mostly small) transmission projects and recent studies announcing that investor-owned utilities plan to ramp up transmission investments in the next few years1 do not alter that fact. Grid investment fell further and further behind the pace of growth in electricity demand during the past two decades2 —a potentially costly threat to the digital economy and the American standard of living. This infrastructure deficit has direct implications for the possibility of liquid wholesale power markets and reduced congestion costs, continued high levels of reliability, any prospect of achieving stable market institutions and regulatory arrangements, and least-cost economic dispatch of generation across the board.3