Market Monitors: Should There Be More?

Relying on the "market" is not a belief system—promising positive results in proportion to hopes and prayers.  Relying on the market is a public policy decision, requiring (a) fact-based confidence that sellers' incentives are aligned with customers' needs, and (b) skepticism that the facts supporting that confidence today will necessarily exist tomorrow.

When approving regional transmission organizations under Order 2000, FERC required each one to have a "market monitor":  an entity that would ensure that RTO-run markets do not produce "transactions or operations that are unduly discriminatory or preferential or provide opportunity for the exercise of market power"; and to provide information on "opportunities for efficiency improvements."  After some scuffling about whether the market monitor should be independent of the RTO (yes, because the monitor evaluates the RTO), things have settled down.  The monitors are outside consultants with budgets, independence, and FERC's attentive ear.

Why not try this elsewhere?  Retail competition in electricity and gas remain experiments—works in progress requiring evaluation and adjustment.  Incumbent telephone companies continue their national effort to remove state regulation, based on a "markets work" premise that deserves a critical eye.  For several years, the Virginia Commission retained the economist Dr. Ken Rose to provide these evaluations of that state's experiment in retail electricity competition.  It's a small price to pay to ensure that the millions of customers drafted into the "markets work" effort receive the benefits the drafters claimed.