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The power industry originated as a collection of local enterprises. Power was generated, transported and sold within state-franchised regions. This made sense because power plants could be built near the customers to minimize transmission. In contrast, fuels were extracted at places where they could be found and transported over long distances. Consumer prices (except for prices charged by non-profit state entities and rural co-ops) were regulated by state utilities commissions. Private utilities were allowed to price power sufficiently high to recover fuel costs, operating expenses and a fair return on invested capital, all subject to review and approval by the commissions.
As demand grew, utilities established interconnections between the franchised territories to serve customers more flexibly. The interconnected transmission evolved into the grid, owned separately by the utilities but operated under agreements governing cooperation. The FERC was given regulatory authority over the system to assure reliability.
TheEnergy Policy Act of 1992 mandated that the grid be opened up to allow access to all qualified marketers of power. The utilities resisted the mandate by imposing restrictions that stifled access. The FERC issued a series of Open Access Orders in 1996 which brought an end to resistance.
This form of deregulation is being decided on a state-by-state basis. In the last few years, many states have begun to rewrite the rules to increase competition. Each state faces a different energy situation and is taking a different approach. In general, areas with high electricity rates have been the first ones to move in this direction. The first few states began implementing their redesigned electricity markets in the early 2000s, and most are still in a transition period.
The impacts, such as volatile commodity prices, evolving markets, mergers and acquisitions, new technology, carbon offsetting and unknown suppliers offering huge savings are putting the companies under significant pressure to adapt their business to respond.