Frequently Asked Questions
- What is electricity restructuring?
- What were the reasons for electricity restructuring in the United States?
- Who has restructured?
- What are the advantages to restructuring?
- Is restructuring consistent with a desire to move toward “green energy.”?
Electricity restructuring eliminates monopoly protection and price regulation for electricity. Under restructuring, the commodity price of electricity is established at wholesale by competitive markets overseen by the Federal Energy Regulatory Commission while electricity distribution and transmission are considered natural monopolies and continue to be price-regulated by the government.
Restructuring occurred in the U.S. in large part due to government-regulated monopoly price regulation imposing billions of dollars in excess costs on electricity consumers. Monopoly-protected utility companies’ had little incentive to reduce costs or adopt efficiencies because any cost overruns were passed on to the consuming public. Thus, one attractive part of restructuring is that if electricity generation firms make poor investment choices, their stockholders pay the cost of those choices rather than ratepayers captive to monopoly utility providers.
In the United States, retail restructuring in various forms has taken place in several states, including Pennsylvania, Maryland, Massachusetts, Connecticut, Illinois, New York, New Jersey, and Texas. The Federal Energy Regulatory Commission’s electricity restructuring policies have promoted the development of larger regional wholesale power markets in the Northeast, the Midwest and the Mid-Atlantic states (The Public Utility Commission of Texas has promoted the development of a regional wholesale market in Texas). In Canada the province of Alberta has restructured. Overseas, restructuring has taken place in England and Wales, Scandinavia, Chile, Australia, and New Zealand.
Restructuring has several important advantages. In particular, it gives generators of electricity the proper incentives to invest in generation. If they are successful innovators, they will make substantial profits. If they make poor investments, they suffer the corresponding losses. Neither situation occurred under regulation. On the retail side, restructuring offers customers the chance to buy power from a variety of firms, with a variety of product offerings.
Yes. As the nation seeks to protect our environment and mitigate the impacts of climate change, competitive markets are one step ahead, leading the charge in the development of clean and renewable energy. For example, more than 70 percent of wind energy resources are in competitive markets despite the fact that only 44 percent of wind energy potential is found in these areas (American Wind Energy Association). Market forces ensure that investments are made in the right places with cleaner, more efficient and innovative technologies.