The Center for the Advancement of Energy Markets (CAEM) has issued a report entitled Throwing out the Baby with the Bathwater: A Rebuttal to Cato’s Report Rethinking Electricity Restructuring.

“I read with disappointment and vigorous disagreement the recent paper by the Cato Institute disparaging the progress of electric restructuring in the U.S,” said Ken Malloy, CAEM’s CEO.

The Cato Institute proposes to discard all electric restructuring efforts toward workably competitive electric markets and instead revert to monopoly electric utilities that generate, transmit and distribute power for a defined franchise area under state public utility commission regulation. Cato dismisses as unworkable the middle course: requiring electric utilities to allow third parties to have use the monopoly transmission and distribution system in order to develop competitive wholesale and retail markets, the so-called “open access” approach.

CAEM’s report unabashedly embraces the open access model rejected by Cato for five reasons:

1. Traditional regulation of electric utilities has utterly failed and must fail given the volatility of energy markets.
2. The U.S. has implemented the open access model successfully in natural gas and telecommunications.
3. Significant benefits of open access reforms are found in innovation, not just in operating the current system more efficiently.
4. Open access is the best of both worlds: protecting consumers by regulating monopoly functions but relying on markets and competition for generation and retail services.
5. The open access model is alive and well in electric, both in the U.S. and abroad.

“Adam Smith must be rolling over in his grave. Cato acknowledges that its preferred model of complete deregulation of electric utilities is a political non-starter. Rather than constructively engaging on making the open access model work—a model of competition that is both politically feasible and has delivered significant benefits to in telecom and natural gas—CATO takes the bizarre position that the U.S. return to the monopoly model,” said Malloy.

The open access model in electric has unquestionably suffered setbacks in the last several years. “This is no time to cut and run. It is a time for the supporters of competitive electric markets to regroup and develop an action plan that learns from the past setbacks. The Cato report is a wake-up call that we have a lot of work to do,” said Malloy.

For more information, conact Ken Malloy at kmalloy@caem.org (703.250.1580)