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Electric Power Industry Restructuring Fact Sheet

In 1978, Congress passed the Public Utility Regulatory Policies Act which laid the groundwork for deregulation and competition by opening wholesale power markets to nonutility producers of electricity. Congress voted to promote greater competition in the bulk power market with the passage of the Energy Policy Act of 1992.  The Federal Energy Regulatory Commission (FERC) implemented the intent of the Act in 1996 with Orders 888 and 889, with the stated objective to “remove impediments to competition in wholesale trade and to bring more efficient, lower cost power to the Nation’s electricity customers.” The FERC orders required open and equal access to jurisdictional utilities’ transmission lines for all electricity producers, thus facilitating the States’ restructuring of the electric power industry to allow customers direct access to retail power generation.

As a result of the Federal and State initiatives, the electric power industry is transitioning from highly regulated, local monopolies which provided their customers with a total package of all electric services and moving towards competitive companies that provide the electricity while utilities continue to provide transmission or distribution services. States are moving away from regulations that set rates for electricity and toward oversight of an increasingly deregulated industry in which prices are determined by competitive markets.

  • Almost half of the States have passed major legislation and/or regulations to restructure their electric power industry (see map).  The States, which regulate distribution services and retail rates for electricity within their borders, each decides whether deregulation is in their best interest.

  • States that historically had higher than average U.S. prices, such as California, Pennsylvania, New York, and most of New England, have opened their retail electricity markets to competition allowing customers to choose their electricity supplier, while other States are beginning with a limited number of consumers. One of the major goals in restructuring is to lower the price for electricity. Industry analysts have cited Pennsylvania as the most successful State in achieving its goals in restructuring.

  • State restructuring legislation has either required or encouraged the divestiture of generation assets: (1) to encourage competition among generating companies, (2) to prevent a few companies from dominating the marketplace, and (3) as a condition for the recovery of costs incurred by utilities for power plants and contracts under a regulated environment that may not be recoverable in a competitive market for generation.  At the end of 2000, approximately 16 percent of all electric utility generating capacity had been sold to unregulated companies or transferred to unregulated subsidiaries which sell their power in competitive markets rather than under cost-of-service regulation.  In some regions of the Nation, such as New England (see graph), almost all generating plants have been sold to private companies.

  • Under competitive pressure brought on by deregulation, investor-owned electric utilities (IOUs) are merging in record numbers. Since 1995, the FERC has approved 50 mergers between IOUs.  These mergers are undertaken in order to gain operating efficiencies usually achieved by a larger company, which utilities believe is necessary to remain competitive in the industry.  More mergers are expected over the next few years, resulting in further consolidation of the industry.

New England Capability, 1988-1999 (Megawatts)D


State Status of Restructuring as of February 2001D


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