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Confirmation hearings can be bombastic and they can be banal. But there always is the option of reminding agency nominees clearly of the central responsibilities of their jobs upon confirmation, an important opportunity that now presents itself with the hearing October 19 before the Senate Energy and Natural Resources committee to consider the nomination of Willie L. Phillips Jr. to be a member of the Federal Energy Regulatory Commission.

FERC has a mandate that is relatively straightforward conceptually, however complex in terms of implementation decisions. To wit: “Economically Efficient, Safe, Reliable, and Secure Energy for Consumers ... at a reasonable cost through appropriate regulatory and market means, and collaborative efforts.”

That is simple and consistent: FERC is supposed to pursue the development of wholesale markets for electricity characterized by service reliability, investment and operational cost efficiency, and the appropriate allocation of such costs — long distance transmission is a good example — across regions, sectors, and consumers. Until Congress changes that central mandate, FERC commissioners are not supposed to indulge the various temptations created by interest group politics in the Beltway.

But, let’s face it: Upon confirmation, appointees to important federal regulatory positions often bring years of experience in related work; Phillips is a member of the District of Columbia Public Service Commission. Such experience inevitably brings with it developed views on how the relevant legal mandates could be improved, and on the characteristics that a “better” world in the relevant realm would display if only legal and political constraints could be circumvented. Agency appointees may recognize their legal responsibilities fully, but they are human after all — a reality often forgotten — and so it is not surprising that they often are observed substituting their preferred outcomes in place of the mandated outcomes that they are supposed to pursue. Or perhaps attempting to blend the two sets of objectives.

In the context of electricity markets and FERC: There is obvious tension between reliability and efficiency on the one hand and an endless list of conflicting objectives on the other. Reductions in greenhouse gas emissions. Favoritism for certain power technologies over others. Reductions in electricity bills for certain populations subgroups and sectors. Environmental “justice,” a term that necessarily remains poorly defined. Etc.

Whether or not those conflicting objectives are worthy goals is irrelevant; they are not to be found among FERC’s actual mandate as defined in the law. One observer notes that upon confirmation, “Commissioner Phillips should … make FERC boring again.” He continues:

FERC has [become] an agency … whose very actions have been as big of a disruptor as any to the nation's energy system.

Reliability ought to come first above all considerations. Instead, the grid operator and its host of stakeholders — power producers, utilities, ratepayers, and public service commissions alike — have had their focus continually diverted to rearranging the operations of the country's largest organized grid to meet the ever-changing whims of FERC.

Commissioner Phillips ought to strive to moderate the vision of the agency, away from being a source of exogenous risk to the affordable and efficient dispatch of natural gas and electricity in this country, and towards a source of stability, by working towards a reliable energy system within the statutes and policies written by Congress.

Climate activists might want a fifth commissioner to "transform" the agency; ratepayers would be better suited by a commissioner who takes to heart the memorable phrasing of FERC Chairman Rob Powelson, who noted he didn't "sign up for this job to blow up competitive markets." As someone with a background serving on a public commission, Commissioner Phillips surely recognizes the worth and merit in making decisions within operative frameworks as instituted by legislative bodies.

Upon confirmation, Commissioner Phillips should bear in mind that it is competitive wholesale power markets — in which power generators compete for market share in bulk power markets — that will further the reliability and efficiency goals that Congress has defined for FERC. This is because it is competitive wholesale power markets that are driven to satisfy the preferences of consumers, who, it is fair to observe, prefer reliability and efficiency above the myriad other political objectives that have distorted FERC’s decisionmaking.

A substantial body of research supports the reliability and efficiency benefits of competitive wholesale power markets: Regions with independent power producers competing for sales have systematically lower electricity rates and slower rates of price increases. One recent studyby economist Dr. Wayne Winegarden reports that “wholesale electricity prices in competitive markets are trending downward and were at or near 6-years lows as of 2020.”

It cannot be repeated to FERC too often that its mandate as defined by Congress — the only definition that matters — is reliability and efficiency. It is not social engineering or greenhouse gas reductions or environmental “justice” or the other numerous objectives that have emerged from the Beltway political machine. That reliability and efficiency objective will be furthered by competitive wholesale power markets rather than by the old and outdated integrated monopoly model of electric utility organization and regulation. FERC should focus its efforts on facilitating this competitive evolution.

 

Benjamin Zycher is a senior fellow at the American Enterprise Institute. 


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