Restructuring the electric industry

Abstract

This paper identifies two trends in the structure of the electric utility industry: an increasingly competitive wholesale market and horizontal mergers in the industry. The paper summarizes current institutions and spells out present legal oversight as divided between federal and state officials. Technological progress has pushed the efficient operational area beyond the geographic bounds that regulation has traditionally operated within; thus, transmission facilities often benefit a wider area than the regulatory jurisdiction where they are located. Regulation has not allocated risk well in the past. The paper catalogs regulatory or policy actions that indicate these two trends. Current restructuring objectives include expanded transmission access, improved transmission pricing, and expeditiously constructed transmission. Finally, pro-market, pro-merger and go-slow proponents of change are described. FERC's Transmission Task Force Report offers two strategies: prepare sweeping changes or reform in increments with obstacles removed as they arise.