NCPA - National Center for Policy Analysis

Electricity Markets Are Competitive

March 8, 2000

Half of the states have passed legislation to allow customers to choose their electricity provider, while the other half are considering major changes in state regulations. However, some electricity providers and consumer advocates are demanding that Congress "micromanage" deregulation by giving the Federal Energy Regulatory Commission (FERC) sweeping authority to address perceived market power abuses by utilities -- including the power to force utilities to divest themselves of power generating assets.

Under changes in federal rules adopted a few years ago, utilities and independent power producers -- called nonutility generators -- anywhere in the U.S. can sell power to any utility. Utilities must give equal access to their transmission lines at comparable rates and terms for electricity from any nonutility generator or reseller. The FERC also required utilities to completely separate their wholesale power sales and transmission operations.

  • Supporters of federal intervention say that while the industry has become more competitive, market power -- the ability of a firm to set prices above competitive rates -- still exists, along with barriers to competitors entering new markets.
  • But economists point out that more than 4,000 nonutility generation plants sell power to the investor-owned utilities, which also compete against 2,000 municipal utilities and more than 900 electric cooperatives.
  • Moreover, the electric power industry is in the throes of a major restructuring, with formerly integrated utilities voluntarily separating themselves into generation, transmission and distribution companies.

Rather than micromanaging deregulation, some economists say the federal government should provide incentives to expand the electricity infrastructure, such as transmission facilities, that are urgently needed to meet growing demands for power and to avoid the blackouts that periodically plague California, New England and other regions.

Source: Bernard Weinstein (University of North Texas), "Micromanaging Utilities Won't Help Consumers," Dallas Morning News, March 5, 2000.

For NCPA Electrical Power study


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