Non-profit Management Of Regulated Network Assets: Recipe For Efficiency?

Michael Giberson

Take billions of dollars of network assets owned by a number of local for-profit monopolists regulated by both state and federal agencies, turn control (but not ownership) of the assets over to a bigger regional monopoly organized as a non-profit run by an independent board, require that all major decisions must be vetted in a stakeholder review process and then submitted for regulatory approval. Several of such non-profit, regulated regional monopolies have been established, mostly developed independently of one another, and using somewhat different business models, custom-built software, individual accounting methods, and idiosyncratic rate designs.

Question: Is this a recipe for efficiency? FERC wants to know.

On September 15, FERC issued a “Notice of Inquiry” concerning the financial reporting, oversight and cost recovery practices of Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). RTOs and ISOs are two kinds of FERC-regulated regional organizations managing transmission assets and in several cases operating energy markets. Some energy consumers and other market participants have raised questions about the costs of these organizations, but it has turned out to be difficult for FERC – and others – to address these questions. Hence, the Notice of Inquiry.

Perhaps the surprising thing here is not that these organizations may be inefficient, but that they work at all. Maybe non-profit governance or regulatory oversight works better than your typical “market oriented” economist might think, or maybe something else is going on. If you have a good handle on these sorts of issues, you may want to submit a response to FERC. Comments are due November 4.

More information is available in a FERC Press Release and the full Notice of Inquiry (pdf file), both available from FERC’s website at www.ferc.gov.


One thought on “Non-profit Management Of Regulated Network Assets: Recipe For Efficiency?

  1. Typical government administrator questions. The better questions would be: why a responsible power exchange (CalPX?) didn’t know that the utilities were gaming the system by consistently underestimating next day consumption and demand, when it was painfully (and profitably) obvious to the marketers; and, why a responsible ISO (CAISO) didn’t know that the congestion on the system it was managing was contrived? How the market is “managed” is the key (assuming that markets can, in fact, be managed); accounting for the disposition of the deck chairs on the Titanic is clearly secondary.

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