The winds of competition are blowing. Some find them chilling; others find them exhilarating. Deregulation calls on competitive markets to stand in for regulatory decisions, giving more choice to customers, reducing costs dramatically, and requiring new capabilities.
Competition is already transforming major portions of the electric industry. Changes in federal and state regulation have introduced competition from independent power producers, and the 1992 Energy Policy Act (em
requiring open access to the transmission grid for wholesale transactions (em has aided competition in the bulk-power markets. High-cost electric utilities can no longer exploit their geographic market power by denying reasonably priced access to their transmission assets. Competition has also entered retail markets in the form of cogeneration, self-generation, district heating and cooling, industrial plant siting, municipalization, and demand-side management (DSM). Customers clearly have competitive options and they want more.
Competition will unbundle electricity into energy, reliability, coordination, transmission, and distribution services. Deep, liquid, pool-based spot markets will price commodity energy on an hourly basis; generation will become fiercely competitive. Customers will enter long-term capacity contracts for base-load reliability and may bid short term to determine peak interruptibility thresholds. The marketing business will package energy, capacity, DSM, and related services tailored to address specific customer needs. System control and coordination services will be provided by an independent system operator for a regulated fee. Transmission and distribution services will continue to be regulated, but regulators will introduce market incentives to enhance market efficiency.