U.S. Department of Energy - Energy Efficiency and Renewable Energy

Tribal Energy Program

Electricity Policy

In the last ten years, the electric utility industry has gone through striking changes. Ten years ago, most utilities were vertically integrated, meaning that utilities owned generation, transmission, and distribution and served all customers in a geographic area. These utilities were monopolies. The charges and rates of for-profit utilities were kept reasonable by regulations, either federal or state, that allowed a certain rate of return.

Deregulation, also called electric restructuring, was the process that began to remove the regulations on these monopolies and to turn the service areas into competitive areas. Many states adopted these approaches. However, very few have found that competition was effective, and most monopolies have not been broken.

At the federal level, the Federal Energy Regulatory Commission (FERC) initiated its own version of restructuring of wholesale electric power markets, mandating a separation of functions between generation and transmission so that all utilities can compete fairly for the use of transmission lines and substations. The premise is that utilities managing both generation and transmission systems will favor their own generators by giving them easier or cheaper access to its transmission system. FERC issued an order (Order 888) requiring all utilities to charge the same rates to others as they charge themselves. These measures in effect opened up the transmission system as a highway for any utility use of the wires, rather than private use of wires for monopolistic purposes. These moves spurred the growth of independent power producers, or merchant generators.

More recently, FERC has taken steps to attempt to create electricity markets that anyone can use by issuing orders favoring "Regional Transmission Organizations" (RTOs), which are independent controllers of the regional high-voltage transmission systems. A proposed Standard Market Design (SMD) rulemaking takes the creation of markets even further and is under industry and political scrutiny.