Academic journal article Management Quarterly

Industry Restructuring Update

Academic journal article Management Quarterly

Industry Restructuring Update

Article excerpt

This industry update summarizes material presented at the 1998 Regional Meeting Mini-Seminars. For additional information, contact Greg Boudreaux at (703) 907-5614 or e-mail at

The electric utility industry continues to change rapidly. In recent months, it has experienced just about everything, from continuing growth in the number of states mandating retail wheeling, to the emergence of new terms like "slamming" and "cramming," to electricity selling for $7,000 a megawatt hour on the wholesale market.

One year ago, the 1997 Regional Meetings included a quote from columnist Jane Bryant Quinn:

"For some utilities, it's too late to survive. For others, there's a three year window in which to recreate themselves. For the future, 'Watch out, as marketing of electricity becomes North America's most costly and risky business.' Not a soul knows how it will all turn out."

As we look back on the past 12 months, it appears that Ms. Quinn was right. Things did get more risky, many utilities are reinventing themselves, and nobody knows how it will turn out. To help make sense of these changes, this industry update will focus on six key questions:

1. What have been the drivers of wholesale and retail competition, and how do these two concepts differ?

2. What lessons can be learned from retail wheeling activities in the states?

3. What's happening in the power marketing business, and how does that relate to the price hikes this summer in the wholesale market?

4. What strategies are being implemented by investor owned utilities?

5. What are the prospects for national restructuring legislation?

6. What are electric cooperatives doing to prepare for competition?


The passage of the Energy Policy Act in 1992 heralded a new era of wholesale transmission access in the bulk power market. A few years later, the Federal Energy Regulatory Commission - FERC - issued its landmark Orders No. 888 and .889. These orders required all "public utilities" subject to FERC jurisdiction under the Federal Power Act to do three things:

1. File open access transmission tariffs

2. Implement a computer-based "Open Access Same Time Information System" ("Oasis")

3. Functionally unbundle their transmission and power marketing functions.

The goal of functional unbundling was to create a nationwide market for the wholesale purchase and sale of electricity. Owners of transmission facilities had to open their transmission systems and provide non-discriminatory "open access" transmission. Most cooperatives aren't "public utilities" under the Federal Power Act, and not directly subject to Orders 888 and 889. However, some non-RUS borrower co-ops are subject to FERC jurisdiction, and all utilities - co-op, municipal, and IOU - are affected by the Orders' reciprocity requirement.

This creation of wholesale competition contributed to the movement toward retail access, also known as retail wheeling. Where do we stand with retail wheeling today? Twelve months ago, in September of 1997, 13 states had approved some form of retail wheeling, either through legislation or regulation. As of September 1 this year, and as shown in Exhibit 1, 19 states have enacted restructuring legislation, or have had restructuring orders issued by the public utility commission. Over half of the U.S. population lives in states that have mandated retail wheeling. In addition, another 26 states have formal legislative or regulatory processes underway to study retail wheeling.

There are several issues that policy makers must address when they try to restructure the industry on the retail level. One of the most important is the potential for large players, whether utilities or independent power marketers, to accumulate and exercise undue market power. A "merger mania" is sweeping the industry. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.