Trend Toward Competition

Competition

During the 1990s, there was a shift toward a more competitive U.S. electricity market. States believed that by moving to a more competitive model, consumers would receive lower priced electricity than under the traditional regulated model. By 2001, 23 states along with the District of Columbia started down the path toward deregulation. As depicted on the maps below, not all of these states went through with the conversion, and others eventually reversed course and re-regulated.

Status of State Electric Industry Restructuring as of February 2003
Status of State Electric Industry Restructuring as of September 2001
www.eia.doe.gov

In a regulated market, customers do not have an option as to which utility company will provide their service. Rates and tariffs under this type of market structure are set periodically and include a fair rate of return for the company and the recovery of prudent costs.

Status of State Electric Industry Restructuring as of February 2003
Status of State Electric Industry Restructuring as of September 2010
www.eia.doe.gov

A deregulated, or competitive, market allows consumers to essentially "shop" for a generation service provider. Proponents of this model believe that by encouraging competition among electric generators, rates will naturally become lower. In some cases, competitive suppliers will differentiate their product by offering consumers different options to tailor their service to the consumers’ particular wants or needs. For example, some consumers may be willing to sign a long-term contract to take advantage of a promotion or lock in a particular rate. However, in a competitive market, consumers may be more likely to experience price volatility as market and economic forces change over time.

AEP Position

Creating a competitive market needs to be a thoughtful process. As with most major issues, a list of pros and cons can be drawn to illustrate the benefits and challenges of different electricity market structures