Regulation and Oversight of the Electric Power Industry
America’s restructured competitive electricity markets are protected from systemic risks such as those that led to the recent financial market crisis and collapse by multiple layers of regulatory oversight. 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.
Financial security and transparency as well as focused, comprehensive and extensive regulatory oversight means that despite the movement to competitive markets, the electricity industry in general remains among the most regulated in the United States. Because of this, the systemic risk and collapse that occurred in the financial sector will not occur in the competitive electricity markets overseen by federal and state regulators.
- Regulation in wholesale markets. Federal regulation ensures that rates for wholesale electricity sales and transmission service in interstate commerce are “just and reasonable.”
- Regulation in retail markets. Prices and other terms of service in retail markets, where individual customers interact with power suppliers, prices and other terms of service are regulated by state public utility commissions.
- Reliability and adequate resources. Oversight to ensure adequate resources and reliable system operations at both the federal and state levels is detailed, extensive and comprehensive.
- Financial security and transparency. 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. New reporting and clearing requirements as well as standards of conduct will provide additional safeguards from financial harm.
- Additional oversight. In addition to comprehensive oversight by the Federal Energy Regulatory Commission and state public utility commissions, the behavior of electric utilities is subject to review by other government authorities, such as the Federal Trade Commission, the Department of Justice, and the Commodity Futures Trading Commission.
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