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| **Home>Electricity>Electricity            Publications>The            Changing Structure of the Electric Power Industry 2000: An Update>Executive            Summary** |

| **The Changing      Structure of the      Electric Power Industry 2000: An Update****Available            Formats****Back Issues****PDF           (1.69 meg)****HTML**        Executive Summary      
The U.S. electric      power industry, the last major regulated energy industry in the United States, is      changing to be more competitive. In some States, retail electricity customers can      now choose their electricity company. New wholesale electricity trading markets,      which were previously nonexistent, are now operating in many regions of the      country. The number of independent power producers and power marketers competing in      these new retail and wholesale power markets has increased substantially over the      past few years. To better support a competitive industry, the power transmission      system is being reorganized from a balkanized system with many transmission system      operators, to one where only a few organizations operate the system. However, the      introduction of these new markets has been far from seamless. California, where      retail competition was introduced in 1998, has had problems recently. Electricity      prices in some parts of the State have tripled and there have been supply problems      as well. Although not as severe as California, New York’s electricity market      has had price spikes which may be attributable to problems in the market design.      While some observers argue that deregulation should be scrapped, others argue that      deregulation is a noble endeavor and that these problems can be solved with      structural adjustments to the markets.

This reorganization is      actually the second major structural realignment in the history of the industry.      The first occurred during the late 1920s and early 1930s. However, the changes then      were mandated by a Federal law that was designed to stop holding company      misconduct. Today, the changes that are occurring are not driven by misconduct, but      rather by economic and technological factors. In fact, three primary catalysts are      driving the current movement toward a restructured electric power industry. First      is a general reevaluation of regulated industries and a rethinking of how the      introduction of competition might improve efficiencies. The telecommunications and      banking industries have been made more competitive, and the electric power industry      is being evaluated for similar efficiency gain potential. The second factor driving      the restructuring debate is the wide disparity of electricity rates across the      United States (Figure ES1). In 1998, consumers in New York paid more than two and      one-half times the rates that consumers in Kentucky paid for their electricity. In      the western United States, the rates paid by consumers in California were well over      twice the rates paid by consumers in Washington. Technological improvements in gas      turbines have changed the economics of power production. No longer is it necessary      to build a 1,000- megawatt generating plant to exploit economies of scale.      Combined-cycle gas turbines reach maximum efficiency at 400 megawatts, while      aero-derivative gas turbines can be efficient at scales as small as 10 megawatts.      These improvements, involving less capital investment and less time to build      capacity, are the third set of catalysts driving      restructuring.

Because it provides      the capability to move power over long distances, the transmission system is an      integral component of the Nation’s electric power industry. Through      regulatory reform, the Federal Energy Regula-tory Commission (FERC) has promoted      the development of competitive wholesale power markets and opening the transmission      system to all qualified users. Since the late 1980s, FERC has approved more than      850 applications to sell power competitively in wholesale markets. In arguably its      most ambitious effort to date, in December 1999, FERC issued Order 2000 calling for      electric utilities to form regional transmission organizations (RTOs) that will      operate, control, and possibly own the Nation’s power transmission system.      The potential benefits of RTOs are the elimination of discriminatory behavior in      using the transmission system, improved operating efficiency, and increased      reliability of the power system.
-  **Contact:** 
-  William Liggett 
-  William.Liggett@eia.doe.gov 
-  Phone: (202) 287-1727 |
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