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Wholesale Competition in the
U.S. Electric Power Industry Fact Sheet

Over the past two decades, the Federal Energy Regulatory Commission (FERC)—the agency responsible for regulation of the bulk power transmission system and wholesale bulk power markets—has encouraged the development of competitive markets for wholesale power trading. Their belief is that competitive markets will lead to more efficient power generation, more technological innovation, and eventually to lower retail electricity prices. Since the movement towards wholesale competition started, the number of companies that generate and sell power in competitive markets and the volume of wholesale power trading has increased significantly.

  • Nonutility generation capacity in the U.S. markets has increased substantially (see bar graph). Numerous electricity trading hubs and wholesale electricity markets that have developed across the country have grown from about 6 percent of total generation capacity in 1991 to almost 20 percent in 1999. Nonutility generators produce power mostly for wholesale markets, and are in direct competition with traditional vertically integrated electric utilities in many regions of the country.


  • The Public Utility Regulatory Policies Act of 1978, which was designed primarily to encourage the use of renewable energy for electricity production, demonstrated that generation of electricity is not a natural monopoly by fostering the growth in nonutility generators and independent power producers. The Energy Policy Act of 1992 further promoted growth in nonutility generators by exempting them from regulatory constraints of the Public Utility Holding Company Act of 1935.


  • With the introduction of competition, wholesale power trading has increased markedly. An example is the substantial increase of power marketers in the United States. Power marketers buy and sell electricity, but they do not own or operate transmission or distribution facilities. Currently, over 500 companies are classified as power marketers and have filed rate tariffs with the FERC to sell wholesale power in the United States. However, actual sales by power marketers are concentrated in approximately 50 companies or less.


  • With the growth in power marketing companies, the volume of power trades has increased significantly in recent years. For example, in the first quarter of 1995 power marketers traded 1.8 million megawatthours of electricity. By the first quarter of 1999, trade by power marketers had increased to over 400 million megawatthours.


  • During the year 2000, regional wholesale power prices have varied considerably (see line graph). Starting in June 2000, California experienced a precipitous increase in average monthly wholesale prices, reaching nearly $400 per megawatthour in December 2000. On the other hand, the average wholesale power prices in east coast markets were less than $45 per megawatthour for most of 2000. Industry leaders are concerned that appropriate market designs are developed to allow market participants to hedge against sudden and sharp increases in wholesale prices.
Share of U.S. Generation Capacity, 1991 and 1999D


Sample Average Wholesale Electricity Prices in 2000, by MonthD


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