Oversight and Regulation in Competitive Electricity Markets Protect Customers and the Economy

Multiple layers of regulatory oversight protect our nation’s competitive electricity markets from systemic risks such as those that led to the recent financial market crisis. Much of the nation’s electric industry has undergone restructuring to promote competition and consumer benefits, but regulation and oversight at the federal and state levels are as strong as, or stronger, than they have ever been.
 
These findings are contained in a new COMPETE Coalition-sponsored report examining electric power industry restructuring and regulation. Focused, comprehensive and extensive regulatory oversight means that despite competitive market reforms, the electricity industry is among the most regulated in the United States.  
 
Consumer protection starts with regulatory oversight of wholesale and retail markets. In wholesale markets, where utilities and other suppliers buy and sell power for resale to consumers, regulation by the Federal Energy Regulatory Commission (FERC) ensures rates are “just and reasonable.” In retail markets, where individual customers interact with power suppliers, prices and other terms of service are regulated by state public utility commissions. Extra oversight is also provided on specific utility behaviors by review from the Federal Trade Commission, Department of Justice and the Commodity Futures Trading Commission.
 
Financial security and transparency also provide consumer safeguards. Both federal and state regulators have broad authority to ensure the financial security of electric utilities. These regulators require prior approval and transparency for asset transfers and other financial dealings of utilities, and financial risk management activities of electricity market participants are addressed by the new financial regulatory reform law. Additionally, new reporting and clearing requirements, as well as standards of conduct, provide even greater financial safeguards.
 
Federal and state oversight of utility planning and grid operations assure consumers an adequate and reliable supply of electricity.
 
The financial markets crisis has been seized upon by certain interests who argue competitive electricity markets are prone to similar risks – but objective analysis belies such scare tactics. In every instance of industry restructuring, from trucking and airlines to communications and pipelines, vested interests raised concerns about reform. But market forces and regulatory reform have sparked innovation and consumer benefits in all of these formerly monopoly-protected industries.
 
Restructuring of the electric power industry is following a similar path. Competition is stimulating advances in clean energy, energy efficiency, demand response, creative electricity product and service plans, and more efficient generation. Consumers are empowered to save money and take control of their energy use – while resting assured their lights stay on and costs remain reasonable.

Joel Malina | September 14, 2010