Policy Study

Movin’ Juice

Making Electricity Transmission More Competitive

Executive Summary

The dramatic blackouts in the Midwest and Northeast in August of 2003 have focused our attention on electricity policy once again. This time the issue is the grid-the transmission network that transports electricity across regions. Our policies governing electricity transmission- regulating it and moving slowly toward changes to support competitive wholesale electricity markets-are getting a sharp look from more people than ever.

Existing long-distance transmission infrastructure is insufficient to support the changes that have come about in the industry since the deregulation of the early 1990s that led to the dramatic increase in the trade of generated electricity.

Ways to remedy this situation fall into three categories: build and upgrade transmission, build generation closer to population centers, or reduce the demand for transmission services. This study provides an analysis of the institutional changes being proposed and debated, particularly FERC’s RTO policy. By establishing RTO rules, FERC can move the industry toward building and managing a national grid network. But at the same time, FERC risks creating an ordered competition- competition engineered based on an assumption about how competition ought to be- rather than a competitive order, which arises spontaneously from human action and economic evolution based on choices and change over time. While ordered competition through the RTO structure could simply be a step to move the industry toward an institutional structure in which a competitive order can emerge, it is at best only part of the legislative and regulatory changes that would produce competition in the industry. To do that, legislative and regulatory changes will have to focus on removing barriers to entry and to technological change in the industry.

Our recommendations encourage the use of distributed generation technology, innovative forms of contracting, and other institutional and technological changes that would increase the contestability of the transmission segment of the electricity value chain, and could do so in a flexible, open-ended way.

Attachments

Lynne Kiesling is Director of Economic Policy at Reason Public Policy Institute. She is also Visiting Associate Professor of Economics at Northwestern University. Her previous positions include Assistant Professor of Economics at the College of William and Mary, and Manager in the Transfer Pricing Economics group at PriceWaterhouseCoopers LLP. She has a Ph.D. in economics from Northwestern University, and has published extensively in academic journals.

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets. Moore leads Reason's policy implementation efforts and conducts his own research on topics such as privatization, government and regulatory reform, air quality, transportation and urban growth, prisons and utilities.

Moore, who has testified before Congress on several occasions, regularly advises federal, state and local officials on ways to streamline government and reduce costs.

In 2008 and 2009, Moore served on Congress' National Surface Transportation Infrastructure Financing Commission. The commission offered "specific recommendations for increasing investment in transportation infrastructure while at the same time moving the Federal Government away from reliance on motor fuel taxes toward more direct fees charged to transportation infrastructure users." Since 2009 he has served on California's Public Infrastructure Advisory Commission.

Mr. Moore is co-author of the book Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry said, "Speaking from our experiences in Texas, Sam Staley and Adrian Moore get it right in Mobility First." World Bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

Moore is also co-author of Curb Rights: A Foundation for Free Enterprise in Urban Transit, published in 1997 by the Brookings Institution Press, as well as dozens of policy studies. His work has been published in the Wall Street Journal, Los Angeles Times, Boston Globe, Houston Chronicle, Atlanta Journal-Constitution, Orange County Register, as well as in, Public Policy and Management, Transportation Research Part A, Urban Affairs Review, Economic Affairs, and numerous other publications.

In 2002, Moore was awarded a World Outsourcing Achievement Award by PricewaterhouseCoopers and Michael F. Corbett & Associates Ltd. for his work showing governments how to use public-private partnerships and the private sector to save taxpayer money and improve the efficiency of their agencies.

Prior to joining Reason, Moore served 10 years in the Army on active duty and reserves. As an noncommissioned officer he was accepted to Officers Candidate School and commissioned as an Infantry officer. He served in posts in the United States and Germany and left the military as a Captain after commanding a Heavy Material Supply company.

Mr. Moore earned a Ph.D. in Economics from the University of California, Irvine. He holds a Master's in Economics from the University of California, Irvine and a Master's in History from California State University, Chico.