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MIT professor Paul Joskow asks the FERC how its rulemaking will help consumers.

By Aug. 23, the electric industry had filed over 150 separate comments - nearly 4,000 pages - telling the Federal Energy Regulatory Commission what it thinks about regional transmission organizations.

All other stories pale in comparison. The commission's proposed rulemaking on RTOs would reinvent the electric transmission business. The case gives economists a once-in-a-lifetime opportunity to instruct a government agency how to design and build a market from the ground up.

Public power is competitive power, and that keeps IOUs on their toes.

There they go again. You know who I mean, the critics who fear us in a competitive electric utility environment, or who oppose, for ideological reasons, government involvement in the power business.

Charles E. Bayless, in his article "Time's Up for Public Power" (Public Utilities Fortnightly, July 1, 1998), offered up just the latest of these below-the-belt blows.

It's tempting to respond in kind to these critics. Why? Because they torture the facts and distort the record.

Shaky merger policy finds the FERC at war with itself.

"IN HIS DELIGHTFUL ARTICLE, "THE FOLKLORE OF Deregulation," published this summer in the Yale Journal on Regulation, federal judge Richard Cudahy notes the ethereal nature of "virtual electricity." This new product, he explains,"exists only as a blip on a computer screen and will never give one a shock." "Reality," he notes, has "retreated to the money part of the system."

We could use a dose of that reality in looking at electric utility mergers.

Divide the grid by usage (em local vs. regional. Apportion costs accordingly, to energy customers by fixed charge, and power producers by flow and distance.

Traditionally, utilities have received transmission costs through an average, rolled-in access fee, or postage-stamp approach. In a deregulated environment, that approach will lead to distorted pricing.

And not just because of transmission-line congestion.

Much of the current debate over electric transmission pricing has centered on the various competing methods of congestion pricing, such as zonal vs.

And why policy on

stranded costs defies

a traditional legal or

economic analysis.

There are sound economic reasons why policymakers should allow electric utilities to recover stranded costs through a competitively neutral network access charge, or some similar fee. First, differences in the quality of utility management appear to have contributed little to differences in electricity rates among states.

On May 31, 1995, the Federal Energy Regulatory Commission (FERC) issued its Statement of Policy in Docket No. PL94-4-000, Pricing Policy for New and Existing Facilities Constructed by Interstate Natural Gas Pipelines.1 In that decision, the FERC sought to provide upfront rate certainty, thereby giving pipelines and shippers a firm basis for making decisions on large-scale investments.

But is that objective realistic?

When economic reformers in the old Soviet Union searched for a metaphor to describe their move to a market economy, they a spoke of a horseman jumping a ditch. The true test of a strategy was that it carried you to the other side. It was no time for half-measures.

Electric utility regulators face a similar challenge.