Providing Testimony Before the FERC on Independent System Operators and Transmission Pricing

NERA was retained by the Edison Electric Institute in April 1998 to testify on independent system operators and transmission pricing before a nationally televised FERC panel. NERA’s invitation to participate stemmed from our role in creating the computational methods for the UK’s wholesale electricity market (the world’s first) upon the privatization of the UK’s state-owned Central Electricity Generating Board.

Our expert Jeff D. Makholm relayed to the FERC the great diversity in electricity transmission needs in different parts of the country and the wisdom of avoiding uniform regulatory formulas for transmission planning and pricing. He specifically warned the FERC against non-profit planning agencies—which would be administrative decision-making and planning monopolies. For any such agency, he advised the FERC to:

• Shrink any monopoly powers to their smallest scope;
• Err on the side of fewer agency duties rather than more; and
• Promote independent transmission companies, which could be regulated effectively and held accountable through the courts, where necessary.

Dr. Makholm concluded with the following recommendations for the FERC:

• Restructured electricity market arrangements need (1) institutional flexibility and innovation, regulatory openness to various sorts of transmission governing organizations; and (2) pricing flexibility to handle various ways of promoting efficient grid expansion.
• The FERC would pursue its goals most effectively if it was proactive in principles, reactive in specifics offered by the industry’s participants, and continually open to new suggestions.