NCPA - National Center for Policy Analysis

Reregulating Electric Power

December 15, 1999

Today, federal energy regulators are expected to release a landmark order to prod utilities to surrender control of their high-voltage transmission lines to nonprofit Independent System Operators (ISOs) -- regional organizations that control, but do not own, high-power long-distance transmission lines.

  • Three years ago, FERC's Order 888 required electric utilities to make transmission lines accessible to anyone wishing to move power across them, forced utilities to separate transmission from power marketing and paved the way for utility diverstitutre of power plants -- some 80,000 megawatts to date.
  • But FERC staffers say there is evidence of continuing discrimination by utilities that favor the wholesale trading activities of their own affiliates by giving them preferential access to the transmission lines they operate.
  • Some 35 percent of the nation's transmission system currently is governed by ISOs -- including California, New York, and the New England, Mid-Atlantic and Midwest states.

The order by the Federal Energy Regulatory Commission (FERC) settles "a yearlong debate over whether FERC should use a carrot or a stick to garner participation," says the Wall Street Journal.

The FERC order would make participation in ISOs voluntary, and may include incentives for utility companies to join -- such as accelerated depreciation of new transmission investments, risk-adjusted rates of return on existing assets, and allowing utilities to pass a higher percentage of profits from transmission asset sales to shareholders.

To date, no for-profit transmission companies have been created, though several are proposed by utility companies. Nationally, utilities own more than $66 billion worth of transmission assets that could be spun off into new companies or consolidated under the ISOs.

Source: Rebeeca Smith, ""U.S. to Reshape the Electric Transmission Grid," Wall Street Journal, December 14, 1999.

For NCPA's study (Vernon Smith) on Deregulating Electricity


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