MYSTERY OF MARKETS

The federal General Accounting Office may have set a milestone for optimism last week with a report called “Lessons Learned from Electricity Restructuring,” a sentiment that suggests a level of understanding that probably exists somewhere but certainly not with the general public and perhaps only tentatively with the GAO. Still, the depth of winter in Maine is the perfect time to pull out the latest electric bill and consider the lessons of restructuring.

They are fivefold, according to the report. 1) Different rules in electricity systems limit benefits from competition. 2) Large areas of the country operate wholesale electricity markets outside of the Federal Energy Regulatory Commission’s jurisdiction. 3) The split between wholesale and retail electricity markets limits benefits. 4) The federal, state and local rules on siting plants limit new power, and therefore new competition.

5) “Better monitoring of market performance is needed to determine how well restructured markets are performing. …”

Given the market meltdown in California and the resulting chaos, the understatement in the last recommendation is superb. And while the first four lessons sound as if the federal government has a grasp of what is happening in the 24 states that have restructured, a look at one general conclusion shows just how tenuous that grasp is and how the next Enron must see opportunity in places across the country. GAO researchers write, “While some progress has been made in introducing competition, it has proven difficult to measure the benefits of restructuring, and where measurement has been possible, the extent to which expected benefits of restructuring have been achieved is unclear.”

This commendable honesty in saying it has no or almost no idea how restructuring is working led the GAO to recommend that FERC to study the issue itself and for FERC to tell Congress about what it finds. Congress, naturally, would want a GAO study to check out whatever FERC found.