    Lessons Learned From Electricity Restructuring: Transition to
    Competitive Markets Underway, but Full Benefits Will Take Time
    and Effort to Achieve (17-DEC-02, GAO-03-271).

    The electricity industry in the United States is undergoing major
    change, the outcomes of which will affect every consumer. The
    industry is restructuring from one where electricity prices are
    set by regulation to one in which competitive markets set the
    price. GAO was asked to report on the extent to which federal and
    state actions, to date, have achieved the goal of restructuring.
    GAO discusses lessons learned from efforts to date.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-03-271
        ACCNO:   A05738
      TITLE:     Lessons Learned From Electricity Restructuring:
    Transition to Competitive Markets Underway, but Full Benefits
    Will Take Time and Effort to Achieve
         DATE:   12/17/2002
      SUBJECT:   Electric energy
    	     Energy industry
    	     Energy marketing
    	     Federal regulations
    	     Independent regulatory commissions
    	     Prices and pricing
    	     Best practices

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    GAO-03-271

    Report to Congressional Requesters

    United States General Accounting Office

    GAO

    December 2002 LESSONS LEARNED FROM ELECTRICITY RESTRUCTURING

    Transition to Competitive Markets Underway, but Full Benefits Will Take
    Time and Effort to Achieve

    GAO- 03- 271

    The goal of restructuring the electricity industry is to increase the
    amount of competition in wholesale and retail electricity markets, which
    is expected to lead to a range of benefits for electricity consumers.
    These benefits include lower prices and access to a wider array of retail
    services than were previously available. Increasing competition, however,
    requires that structural changes be made to the electricity industry, such
    as allowing a greater number of sellers and buyers of electricity to enter
    the market.

    The federal government has taken steps to bring about these changes by,
    among other things, promoting and opening access to regional wholesale
    markets and proposing to standardize a market design for these markets. In
    addition, about one- half of the states have taken steps to introduce
    competition in retail markets, including allowing customers to choose
    their own electricity supplier.

    It is not possible to determine the extent to which the goal of
    restructuring* the development of competitive markets* has been achieved
    to date. Our review of studies, our own analysis, and our evaluation of
    monitoring activities of electricity markets indicate a mixed picture of
    how much progress the industry has made in developing competitive markets
    and the extent to which expected benefits have been achieved. While some
    progress has been made in introducing competition, it has proven difficult
    to measure the benefits of restructuring, and where measurement has been
    possible, the extent to which expected benefits of restructuring have been
    achieved is unclear. Recently, with the formation of its new Office of
    Market Oversight and Investigations, the Federal Energy Regulatory
    Commission has taken positive steps to look more broadly at the
    performance of electricity markets.

    On the basis of our review, we identified five key issues and lessons
    learned that will require careful consideration as part of restructuring.
    The solutions to these lessons may prove contentious and addressing them
    will take time and effort. Unless addressed, the following four lessons
    will limit competition and thereby diminish the ability of electricity
    restructuring efforts to achieve their full expected benefits:

    Different rules apply to the various regional electricity markets.

    The Federal Energy Regulatory Commission has limited jurisdiction in
    wholesale markets.

    Wholesale and retail electricity markets have developed separately.

    Generation and transmission siting decisions are subject to federal,
    state, and local government jurisdiction.

    In addition, a fifth lesson points out the need for better monitoring of
    market performance to determine how well restructured markets are
    functioning and the extent to which these markets provide consumer
    benefits.

    www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 271. To view the full report,
    including the scope and methodology, click on the link above. For more
    information, contact Jim Wells at (202) 512- 3841 or wellsj@ gao. gov.
    Highlights of GAO- 03- 271, a report to the

    Chairmen, Subcommittees on Government Efficiency, Financial Management and
    Intergovernmental Relations and Energy Policy, Natural Resources and
    Regulatory Affairs, House Committee on Government Reform

    December 2002

    LESSONS LEARNED FROM ELECTRICITY RESTRUCTURING

    Transition to Competitive Markets Underway, but Full Benefits Will Take
    Time and Effort to Achieve

    The electricity industry in the United States is undergoing major change,
    the outcomes of which will affect every consumer. The industry is
    restructuring from one where electricity prices are set by regulation to
    one in which competitive markets set the price. GAO was asked to report on
    the extent to which federal and state actions, to date, have achieved the
    goal of restructuring. GAO discusses lessons learned from efforts to date.

    To help Congress ensure that the fullest benefits are achieved from
    electricity restructuring, and to better understand what progress has been
    made, GAO recommends that the Federal Energy Regulatory Commission (FERC)
    (1) determine how restructured markets are performing across the country,
    and (2) report annually to Congress and the states on the status of these
    markets, including emerging issues and impediments to reaching its goal.

    In commenting on the draft report, FERC agreed with GAO*s findings,
    *lessons learned,* and the recommendation for annual reporting. However,
    FERC said GAO*s recommendation to determine how restructured markets are
    performing across the country is problematic because of the jurisdictional
    division between states and FERC. GAO revised the recommendation to
    clarify that it is not asking FERC to step outside of its jurisdictional
    boundaries.

    Page i GAO- 03- 271 Lessons Learned from Electricity Restructuring Letter
    1

    Executive Summary 3 Purpose 3 Background 4 Results in Brief 5 Principal
    Findings 7 Agency Comments 11

    Chapter 1 Introduction 13 The Electricity Industry Is An Important and
    Complex Sector of the

    U. S. Economy 13 The Development of a National Electricity Network 15
    Federal and State Regulatory Framework Developed to Oversee

    the Electricity Industry 16 Changing Nature of the Electricity Industry
    Made Restructuring a

    Possible and Attractive Option 17 Restructuring Occurs in a Legislative
    and Regulatory Environment

    Designed to Achieve Many Goals 19 Objectives, Scope, and Methodology 19

    Chapter 2 Goal of Restructuring Is to Increase Competition in Order to
    Provide Benefits to Consumers 21

    To Meet the Goal of Increasing Competition Requires Structural Changes to
    the Industry 21 Increased Competition Is Expected to Lead to a Range of
    Benefits 24 Restructuring Expected to Occur While Maintaining or Improving

    System Reliability 25 Conclusion 26

    Chapter 3 Federal and State Efforts Are Underway to Develop Competitive
    Markets 27

    Federal Efforts Have Promoted Competition and Opened Access to Regional
    Wholesale Markets 27 Some States Have Opened Retail Markets to New
    Sellers, While

    Others Have Not Pursued Restructuring Efforts 31 Conclusion 33 Contents

    Page ii GAO- 03- 271 Lessons Learned from Electricity Restructuring
    Chapter 4 The Extent to Which the Goal of Competitive

    Electricity Markets Has Been Achieved Is Uncertain 34 Review of Studies
    Indicates a Mixed Picture of Competition and

    Uncertainty Regarding Benefits 34 GAO Evaluation Indicates Some Progress
    Made in Developing

    Competitive Markets but Questions Remain 35 Restructuring*s Impact on
    Prices and Other Expected Benefits

    Remains Unclear 39 Conclusion 43

    Chapter 5 Lessons Learned from Electricity Restructuring and
    Recommendations 44

    Experience with Restructuring to Date Provides Five Lessons Learned 44
    Conclusion 52 Recommendations for Executive Action 53 Agency Comments 53

    Appendix I Scope and Methodology 57

    Appendix II Related GAO Reports 59

    Appendix III Comments from the Federal Energy Regulatory Commission 61

    Appendix IV Bibliography of Selected Restructuring Studies 64

    Appendix V GAO Contacts and Staff Acknowledgments 68

    Table

    Table 1: Status of RTOs Approved by FERC as of November 2002 29

    Page iii GAO- 03- 271 Lessons Learned from Electricity Restructuring
    Figures

    Figure 1: Functions of the Electricity Industry 14 Figure 2: The Three
    Major Interconnections in the Continental

    United States 16 Figure 3: Average Electricity Prices, 1960- 1982 18
    Figure 4: Status of State Electricity Restructuring Activity as of

    November 2002 and Average Prices as of 1992 33 Figure 5: Generating
    Capacity Added, 1995 through July 2002 38 Figure 6: Average Electricity
    Prices, 1960- 2001 40 Figure 7: Overall U. S. Capacity Factor, 1949- 2001
    43 Figure 8: Areas Served by Entities Subject to FERC Jurisdiction,

    2002 46 Figure 9: Ownership of Large Transmission Lines by Entities

    Subject to FERC Jurisdiction, 2002 47

    Abbreviations

    EPACT Energy Policy Act of 1992 ERCOT Electric Reliability Council of
    Texas FERC Federal Energy Regulatory Commission ISO independent system
    operator MW megawatt OASIS Open Access Same- Time Information System PJM
    Pennsylvania, New Jersey, and Maryland independent

    system operator PUHCA Public Utility Holding Company Act of 1935 RTO
    regional transmission organization

    Page 1 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    December 17, 2002 The Honorable Steve Horn, Chairman Subcommittee on
    Government Efficiency, Financial Management and Intergovernmental
    Relations Committee on Government Reform House of Representatives

    The Honorable Doug Ose, Chairman Subcommittee on Energy Policy,

    Natural Resources and Regulatory Affairs Committee on Government Reform
    House of Representatives

    As requested, we are reporting on efforts being taken to transition the
    electricity industry from one in which monopoly utilities generate and
    provide electricity to customers at regulated prices into one in which
    private companies compete to sell electricity in a market- based system,
    and the lessons learned from the experience to date. This report contains
    recommendations to the Chairman, Federal Energy Regulatory Commission
    (FERC), on (1) the need to develop a plan to collect and evaluate data and
    information in order to monitor how electricity restructuring is
    performing and to determine if the benefits of restructuring are being
    achieved and (2) the need for FERC to report to Congress and the states
    annually on, among other things, the progress being made in developing
    competitive wholesale electricity markets.

    As agreed with your offices, unless you publicly announce its contents
    earlier, we plan no further distribution of this report until 30 days from
    the date of this letter. At that time, we will send copies to other
    appropriate congressional committees as well as to the Chairman, FERC, and
    the Director, Office of Management and Budget. We will also make copies
    available to others upon request. In addition, the report will be
    available at no charge on the GAO Web site at http:// www. gao. gov.

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    If you or your staff have any questions concerning this report, please
    call me at (202) 512- 3841. Key contributors to this report are listed in
    appendix V.

    Jim Wells Director, Natural Resources and Environment

    Executive Summary Page 3 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    The electricity industry in the United States is undergoing major changes,
    the outcomes of which will affect every consumer. The industry is in the
    process of restructuring from one in which monopoly utilities generated
    and provided electricity to consumers at regulated prices to one in which
    numerous private companies are expected to compete to sell electricity in
    wholesale and retail markets at prices determined by supply and demand
    conditions. This restructuring effort, which began at the wholesale level
    in 1992, has increasingly come under scrutiny as a result of volatile
    prices, power shortages, and accusations of market manipulation. For
    example, in 1998 the Midwest experienced a short- term spike in
    electricity prices that resulted in the financial collapse of some
    electricity trading companies and disruptions for some electricity
    consumers. Further, in 2000, electricity markets in California experienced
    a prolonged period of high prices and power shortages* even blackouts, in
    some areas. GAO, academics, state government officials, and others have
    found that market participants contributed to the crisis through their
    efforts to raise prices. More recently, there have been accusations of
    market manipulation, concerns over the accuracy of financial reporting,
    widespread concern in the investment community over credit- worthiness of
    some energy companies, and significant declines in financial market
    valuation of several industry participants.

    A number of studies and investigations are underway to respond to these
    concerns. FERC has launched several efforts to examine the operation of
    wholesale electricity markets and investigate complaints of market abuse
    and mismanagement. Similarly, states have undertaken examinations of the
    status of their efforts to promote competition in retail markets and
    undertaken investigations of complaints of market abuses. Congress has
    held hearings to investigate accusations of market abuses and to examine
    electricity markets in general. In addition, in each of the past several
    years, Congress has examined proposed legislation aimed at improving
    federal oversight of electricity markets and related matters. As such,
    Congress will continue to play an important role in restructuring the
    electricity industry.

    In light of the importance of restructuring to consumers throughout the
    United States, and to assist Congress in evaluating the state of
    electricity restructuring, the Chairmen of the Subcommittee on Government
    Efficiency, Financial Management, and Intergovernmental Relations and the
    Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs,
    House Committee on Government Reform asked us to determine (1) the goals
    of electricity market restructuring, (2) what actions federal and state
    agencies have taken to restructure the electricity industry, (3) to what
    extent these actions have achieved the goals of restructuring, and (4)
    Executive Summary

    Purpose

    Executive Summary Page 4 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    what lessons can be learned from electricity restructuring efforts made to
    date.

    Electricity is central to the lives and livelihoods of all Americans.
    Annual expenditures on electricity amount to about $224 billion, and
    electricity provides the power to produce billions more in revenue in
    other industries. The electricity industry is based on four distinct
    functions: generation, transmission, distribution, and system operations.
    Once electricity is generated* whether by burning fossil fuels, through
    nuclear fission, or by harnessing wind, solar, or hydro energy* it is
    typically sent through high- capacity, high- voltage transmission lines to
    electricity distributors in local regions. Once there, electricity is
    transformed into a lower voltage and sent through local distribution wires
    for use by industrial plants, commercial businesses, and residential
    consumers. Because electric energy is generated and consumed almost
    instantaneously, the operation of an electric power system requires that a
    system operator constantly coordinate the balance between the generation
    and consumption of power. Absent such constant balancing, electrical
    systems would be highly unreliable, with frequent and severe outages.

    Historically, most utility companies built their own systems of power
    plants and transmission and distribution lines to serve the needs of
    consumers in their local areas. This arrangement occurred because
    electricity service had long been considered a natural monopoly, wherein
    it was believed to be most efficient for one company to serve the entire
    needs of a local area. Over time, these individual company systems were
    connected with adjacent companies* systems in order to improve reliability
    and to facilitate trade across companies. In addition to these utilities,
    federally owned utilities and power marketing administrations (such as the
    Bonneville Power Administration, the Tennessee Valley Authority, and the
    Western Area Power Administration), publicly owned utilities (such as
    municipal authorities and public power districts), and cooperatively owned
    utilities also participated in these electricity systems. These
    interconnected systems ultimately evolved into three major networks: the
    Western Interconnect, the Eastern Interconnect, and the Texas
    Interconnect. Because utilities operated as monopolies, wholesale and
    retail electricity pricing was regulated by FERC and the states,
    respectively. Under the Federal Power Act of 1935, FERC is charged with
    overseeing the rates, terms, and conditions of wholesale sales and
    Background

    Executive Summary Page 5 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    transmission of electricity in interstate commerce. FERC does not directly
    regulate federally owned, publicly owned, or cooperatively owned
    utilities. 1 States retained regulatory authority over retail sales of
    electricity, electricity generation, construction of transmission lines,
    and intrastate transmission and distribution.

    Throughout the 1970s and 1980s, a number of events occurred in the
    electricity industry* including rising electricity prices and advances in
    generating technologies* that began to encourage a shift towards a more
    competitive marketplace for wholesale power. In addition, many economists
    and public policy analysts had long advocated the advantages of
    competition over regulation and promoted the idea that competition could
    drive down costs and prices by reducing inefficiencies, as well as spur
    new technological innovations. Further, these advocates of competition
    claimed that actions by legislators and regulators to deregulate airlines,
    railroads, trucks, and barges had led to lower prices, better service, and
    improved safety. These factors encouraged legislators and regulators to
    examine the possibility of restructuring the electricity industry.

    Based on an extensive review of laws, federal regulations, and relevant
    literature, the goal of restructuring the electricity industry is to
    increase the amount of competition in wholesale and retail electricity
    markets. Increasing the amount of competition requires structural changes
    to the electricity industry, such as allowing a greater number of sellers
    and buyers of electricity to enter the market. Competition is expected to
    produce benefits for consumers, including lower prices and access to a
    wider array of retail services, by increasing the efficiency of wholesale
    electricity generation and by encouraging innovations in retail
    electricity services. Such efficiency gains and new services are expected
    to occur as a result of increased incentives for electricity suppliers to
    provide better service at lower prices.

    1 Federally owned electricity- producing entities, such as the Tennessee
    Valley Authority and the Bonneville Power Administration, are subject to
    Department of Energy and congressional oversight. Because publicly owned
    utilities, such as municipal systems, are owned by the people they serve,
    they are generally overseen by the city council or elected/ appointed
    members of an operating board. Similarly, since cooperatives are also
    owned by the people they serve, they are generally overseen by a board of
    directors, or the equivalent, elected by the customers/ owners. In their
    comments to a draft of this report, FERC pointed out that additional
    oversight of cooperatives may be provided by the Rural Utilities Service
    or by FERC. Results in Brief

    Executive Summary Page 6 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    Over the past 10 years, the federal government has taken a series of steps
    that have opened wholesale markets to competition, and nearly half the
    states have taken various steps toward introducing competition in retail
    markets. Federal efforts by FERC to promote competition have opened access
    to regional wholesale electricity markets. More recently, FERC has
    proposed to standardize a market design for all jurisdictional electric
    transmission providers. Twenty- four states and the District of Columbia
    have promoted competition in retail electricity markets in a variety of
    ways, such as allowing customers to choose a retail electricity supplier,
    while 26 states have not pursued restructuring efforts and continue to
    require retail customers to purchase electricity from the traditional
    utility operating in the customer*s geographic region. More recently, a
    number of states have delayed or postponed their efforts to restructure.

    It is not possible to fully determine the extent to which the development
    of competitive markets* the goal of restructuring* has been achieved to
    date. Our review of relevant studies indicates a mixed assessment of how
    far along the industry is in developing competitive markets and the extent
    to which expected benefits have been achieved. Most studies found that
    some progress has been made in introducing competition in wholesale
    electricity markets, but it has proven difficult to measure the benefits
    of restructuring for retail customers. Where measurement has been
    possible, there is disagreement about the extent to which expected
    benefits of restructuring have been achieved. Our own evaluation of the
    performance of restructuring was also inconclusive. With respect to the
    goal of increasing competition, restructuring efforts by the federal
    government and the states have broadened electricity markets by making
    them more regional and allowing new generation companies to participate.
    However, questions remain regarding the competitiveness of these markets.
    In addition, the extent to which restructuring has led to expected
    benefits is uncertain, in part because restructuring is in the early
    stages of development.

    In determining the goals of electricity restructuring, reviewing actions
    the federal and state agencies have taken to restructure the industry, and
    determining whether those actions have achieved the goal of increased
    competition and the expected benefits of restructuring, we have identified
    five lessons learned from experience to date that relate to the structure
    of electricity markets and market oversight. These lessons involve (1) the
    existence of different rules in electricity systems, (2) FERC*s limited
    jurisdiction in wholesale markets, (3) the separate development of
    wholesale and retail electricity markets, (4) federal, state, and local
    decisions on siting new power plants and the transmission infrastructure,

    Executive Summary Page 7 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    and (5) the importance of better monitoring of restructuring. With regard
    to monitoring, FERC has recently taken positive steps to look more broadly
    at the performance of electricity markets through the formation of its new
    Office of Market Oversight and Investigation. While these efforts may
    improve the situation, GAO is making recommendations to FERC to better
    monitor and report to Congress regarding the status of restructuring
    efforts.

    In commenting on the draft report, FERC agreed with GAO*s findings,
    *lessons learned,* and the recommendation to report annually to Congress
    and the states. However, FERC said GAO*s recommendation to determine how
    restructured markets are performing across the country was more
    problematic because of the jurisdictional division between states and
    FERC. In response, GAO has revised the recommendation to clarify that GAO
    is not asking FERC to step outside its jurisdictional boundaries.

    Based on an extensive review of laws, federal regulations, and relevant
    literature, the goal of restructuring the electricity industry is to
    increase the amount of competition in wholesale and retail electricity
    markets. Increasing competition requires structural changes to the
    electricity industry, such as increasing the number of buyers and sellers
    of electricity, improving the availability and accuracy of price
    information, and allowing private companies to enter into competition with
    existing utilities freely and fairly. Economists and other policy analysts
    expect competition to lead to a range of benefits for consumers of
    electricity, including lower prices and access to a wider array of retail
    services than have been previously available. Based in part on success in
    other industries that have been restructured, competition is expected to
    achieve these benefits through improvements in the efficiency of wholesale
    electricity generation as well as innovations in retail electricity
    services. Generally, competition is expected to lead to greater efficiency
    and more innovations by improving the incentives for electricity suppliers
    to provide better and less expensive electricity service. Because of the
    importance of the electricity industry to the lives of all Americans, it
    is essential that any restructuring that does occur does not cause a
    deterioration in the reliability of the electricity system. Principal
    Findings

    Goal of Restructuring Is to Increase Competition in Order to Provide
    Benefits to Consumers

    Executive Summary Page 8 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    The federal government has taken a series of actions over the past decade
    that have promoted competition in wholesale electricity markets. The
    Energy Policy Act of 1992 (EPACT) (1) authorized FERC to require
    utilities, on a case- by- case basis, to provide other wholesale buyers
    and sellers access to their transmission lines and (2) created a new class
    of generators to further compete with traditional utilities. Beginning in
    1996, FERC has issued a series of regulations to open up the transmission
    system to competitive generators of electricity and to promote the
    development of regional transmission organizations that can operate the
    transmission system more efficiently and reliably than traditional
    utilities. More recently, FERC has proposed mandating a standard market
    design for all jurisdictional electric transmission providers to allow
    sellers to transact easily across transmission boundaries and to allow
    customers to receive the benefits of lower cost and more reliable
    electricity supply.

    To date, 24 states and the District of Columbia have enacted legislation
    and/ or issued regulatory orders to restructure their retail electricity
    markets. Of these, 17 states and the District of Columbia continue to be
    active in implementing retail access, thereby allowing customers to choose
    their own electricity supplier. However, most of these states have fixed
    retail electricity prices at (or below) the regulated rate in place before
    the onset of retail competition and continue to allow customers who do not
    select an alternative service provider or whose competitive supplier has
    stopped offering service to be served by their traditional utility. The
    remaining 26 states have not enacted legislation and/ or issued regulatory
    orders to implement retail access, and they continue to require retail
    customers to purchase electricity from their traditional utility at
    regulated rates.

    It is not currently possible to fully determine the extent to which the
    goal of developing competitive markets has been achieved. Our review of
    studies related to measuring the performance of restructuring indicates a
    mixed assessment of how far along the industry is in developing
    competitive markets and the extent to which expected benefits have been
    achieved. While most studies found progress has been made in introducing
    competition in wholesale electricity markets, results at the retail level
    have been difficult to measure. Where measurement has been possible, there
    is disagreement about the extent to which the expected benefits of
    restructuring have been achieved. Our own evaluation indicates that
    federal and state restructuring efforts have broadened wholesale
    electricity markets by making them more regional and allowing new
    generation companies to participate. For example, several new regional
    Federal and Some State

    Efforts Underway to Develop Competitive Markets

    The Extent to Which Markets Are Competitive Is Uncertain

    Executive Summary Page 9 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    markets have emerged where buyers and sellers bid to buy and sell
    wholesale electricity. While it appears that markets are broadening, we
    could not determine, based on existing studies or our evaluation of
    available data, the extent to which the expected benefits of increased
    competition have been achieved. For example, while consumer prices have
    generally fallen since restructuring began* and more so in states that are
    restructuring than in nonrestructured states* the falling prices continue
    a trend that began prior to restructuring, making it difficult to
    determine the precise role restructuring has played in causing the price
    reductions.

    We identified five lessons learned from experience to date regarding the
    structure of electricity markets and the need to monitor market
    performance. Collectively, these lessons demonstrate potential limitations
    to developing a national competitive electricity market and the expected
    benefits of restructuring, as well as the importance of information in
    monitoring restructuring progress.

    Different rules in electricity systems limit the ability to achieve
    benefits from competition.

    In its effort to promote competitive wholesale markets, FERC historically
    has approved a wide range of specific rules that govern the operation of
    individual transmission system operators and centralized wholesale markets
    under FERC*s jurisdiction. Today, these different rules and operations in
    regional electricity systems and wholesale markets make it more costly for
    participants in different electricity markets to buy and sell from each
    other across electricity systems. This, in turn, limits the degree of
    competition and the expected benefits of restructuring.

    FERC*s limited jurisdiction in wholesale markets limits the ability to
    achieve benefits from competition.

    FERC does not have regulatory authority over all entities in wholesale
    electricity markets, with large areas of the country operating primarily
    outside the scope of FERC*s authority. Therefore, FERC has been unable to
    prescribe the same operating standards and access to markets for these
    entities as it has with entities subject to its jurisdiction. This
    situation limits the development of competitive wholesale markets by
    limiting the degree to which market participants can make electricity
    transactions across these jurisdictions. This, in turn, limits the ability
    of restructuring Lessons Learned from

    Electricity Restructuring

    Executive Summary Page 10 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    efforts to achieve a truly national competitive electricity system and
    ultimately limits the expected benefits of restructuring.

    Separate development of wholesale and retail electricity markets limits
    the ability to achieve benefits from competition.

    Federal and state actions to restructure wholesale and retail markets
    have, for the most part, been undertaken separately. Federal actions have
    focused on promoting wholesale competition by increasing the direct
    interaction of buyers and sellers to determine price. However, most state
    actions at the retail level* to freeze prices or continue price regulation
    in areas not undertaking retail restructuring* have had the effect of
    limiting the degree to which retail consumers respond to changes in
    underlying wholesale prices. As a result, these actions place limits on
    the extent to which fully competitive markets can develop and, thus, will
    limit the expected benefits of restructuring.

    Federal, state, and local decisions on siting new power plants and
    transmission lines limit the ability to achieve benefits from competition.

    While restructuring has opened access to wholesale electricity markets,
    new market entry* through building new generating or transmission
    facilities* remains subject to federal, state, and local siting decisions.
    For example, state decisions on how and when to site new generation and
    transmission will, to a great extent, determine the availability of and
    access to new electricity supplies and, therefore, will affect the
    competitiveness of wholesale electricity markets. As a result, state
    actions that serve to delay or prevent the addition of new power plants or
    power lines have the effect of limiting market entry and, consequently,
    may limit FERC*s ability to achieve a national market for competitive
    electricity and thus the expected benefits of restructuring.

    Better monitoring of market performance is needed to determine how well
    restructured markets are performing and the extent to which expected
    benefits of competition are achieved.

    To date, monitoring of restructuring efforts has not been comprehensive
    enough to fully assess how well restructured markets are performing nor
    the extent to which expected benefits of competition have occurred.
    Limitations in the authority to collect data and incomplete monitoring
    efforts by regulatory and monitoring entities have precluded a
    comprehensive effort to determine how far along the road to greater

    Executive Summary Page 11 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    competition we have come, and what remains to be done. To move forward, it
    is essential that FERC and other regulatory bodies and market monitors
    carefully watch for signs of problems and have the ability to make needed
    adjustments, such as recognizing potential barriers to needed investments
    in new generating or transmission facilities and acting to address them in
    a timely fashion.

    Recommendations

    To help ensure that the fullest benefits possible are achieved from
    electricity restructuring, and to better understand what progress has been
    made, GAO is recommending that the Chairman, FERC,

    1. determine how restructured wholesale electricity markets are performing
    by developing and implementing a plan to collect necessary data and
    perform evaluative analysis. These data should be sufficient to allow
    evaluation of the competitiveness of these markets (including, but not
    limited to, the extent of market power, efficiency of the industry, and
    ease of market entry) and the expected benefits to retail consumers (such
    as lower retail prices and the availability of new products). Where
    possible and appropriate, FERC should work in concert with state and
    regional entities to take advantage of their knowledge, expertise, and
    access to important data relevant to the impacts of restructuring on
    consumers.

    2. report annually to Congress and the states on the status of
    restructuring efforts, identify emerging issues and impediments to
    reaching FERC*s goal of achieving national competitive wholesale
    electricity markets, and make recommendations to Congress and the states
    for changes that will improve the functioning of these markets.

    We provided FERC with a draft of this report for review and comment. FERC
    agreed with the report*s principal findings and *lessons learned.* In
    addition, FERC agreed with GAO*s recommendation that FERC should report
    annually to Congress on the status of restructuring, noting that it plans
    to do so in spring 2003. However, FERC said that GAO*s recommendation
    directing it to determine, in concert with the states and regional
    entities, how both wholesale and retail markets are performing is more
    problematic. FERC was concerned about this recommendation because of the
    jurisdictional division between states and FERC* states have jurisdiction
    over retail and FERC over wholesale electricity markets. Agency Comments

    Executive Summary Page 12 GAO- 03- 271 Lessons Learned from Electricity
    Restructuring

    In addition, FERC stated that it does not have the resources or expertise
    to evaluate retail markets.

    In response to FERC*s concern, we clarified that we are not recommending
    that FERC step outside its jurisdictional boundaries or attempt to assume
    responsibility for the status and effectiveness of retail restructuring
    efforts. Further, we revised the language of our recommendation to state
    that FERC should evaluate the impacts of restructuring efforts in
    wholesale markets on retail electricity consumers. With regard to the
    issue of resources and expertise, we believe that FERC can supplement its
    own assets by drawing from many sources, including other federal agencies,
    expert panels, state agencies, and regional market monitoring entities.

    FERC*s written comments are presented in appendix III. Our evaluation of
    FERC*s written comments are contained at the end of chapter 5. In
    addition, FERC provided us with some technical changes, which we
    incorporated into the report as appropriate.

    Chapter 1: Introduction Page 13 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    The electricity industry is an important and complex sector of our economy
    that is central to the lives of Americans. Historically, the U. S.
    electricity industry developed into a structure of localized monopoly
    utilities. Each of these monopoly utilities generated electricity to serve
    consumers in its local area. Within this localized structure, there was
    limited interaction among different utilities across wide geographic
    regions. Because of the complex nature of the electricity industry and its
    historical development, both federal and state entities are involved in
    overseeing and regulating the industry. Throughout the 1970s and 1980s, a
    number of events occurred in the electricity industry that began to
    encourage a shift toward more competitive electricity markets.

    Electricity is central to the lives and livelihoods of all Americans.
    Annual expenditures on electricity amount to about $224 billion, and
    electricity is an important input to production in many industries. For
    example, industrial customers* including companies engaged in
    manufacturing and assembling products* rely on electricity to power
    computers, tools, and machinery, as well as for lighting, heating, and
    cooling their plants and buildings. Similarly, commercial customers*
    including shopping malls, office buildings, individual stores, and
    financial and stock markets* also depend heavily on electricity for their
    day- to- day operations. In addition, residential customers rely on
    electricity for heating and cooling, lighting, cooking, and cleaning.
    Finally, with the expansion of Internet usage and the importance of
    information technologies for commerce, electricity has assumed an even
    greater role in the daily lives of Americans. As a result, the cost and
    availability of electricity have implications for the entire economy.

    The electricity industry is based on four distinct functions: generation,
    transmission, distribution, and system operations. (See figure 1.) Once
    electricity is generated* whether by burning fossil fuels, through nuclear
    fission, or by harnessing wind, solar, or hydro energy* it is sent through
    high- voltage, high- capacity transmission lines to electricity
    distributors in local regions. Once there, electricity is transformed into
    a lower voltage and sent through local distribution wires for end- use by
    industrial plants, commercial businesses, and residential consumers.
    Chapter 1: Introduction

    The Electricity Industry Is An Important and Complex Sector of the U. S.
    Economy

    Chapter 1: Introduction Page 14 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    Figure 1: Functions of the Electricity Industry

    Source: GAO.

    A unique feature of the electricity industry is that electricity is
    consumed at almost the very instant that it is produced. As electricity is
    produced, it leaves the generating plant, and travels at the speed of
    light through transmission and distribution wires to the point of use,
    where it is immediately consumed. In addition, electricity cannot be
    easily or inexpensively stored and, as a result, must be produced in near-
    exact quantities to those being consumed. Because electric energy is
    generated

    Chapter 1: Introduction Page 15 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    and consumed almost instantaneously, the operation of an electric power
    system requires that a system operator balance the generation and
    consumption of power. The system operator monitors generation and
    consumption from a centralized location using computerized systems and
    sends minute- by- minute signals to generators reflecting changes in the
    demand for electricity. The generators then make the necessary changes in
    generation in order to maintain the transmission system safely and
    reliably. Absent such continuous balancing, electrical systems would be
    highly unreliable, with frequent and severe outages.

    Historically, the electric industry developed initially as a loosely
    connected structure of individual monopoly utility companies, each
    building power plants and transmission and distribution lines to serve the
    exclusive needs of all the consumers in their local areas. Such monopoly
    utility companies were typically owned by shareholders and were referred
    to as investor- owned utilities. In addition to these investor- owned
    utilities, several types of publicly owned utilities, including rural
    cooperatives, municipal authorities, state authorities, public power
    districts, and irrigation districts, also began to sell electricity. About
    one- third of these publicly owned utilities are owned collectively by
    their customers and generally operate as not- for- profit entities.
    Further, nine federally owned entities, including the Tennessee Valley
    Authority and the Bonneville Power Administration, also generate and sell
    electricity* primarily to cooperatives, municipalities, and other
    companies that resell it to retail consumers.

    Over time, the transmission and distribution systems owned by private,
    public, and federal utilities became interconnected with one another in
    order to improve reliability and to facilitate trade across companies.
    These interconnected systems ultimately evolved into three major networks:
    the Western Interconnect, the Eastern Interconnect, and the Texas
    Interconnect. Figure 2 shows the division of the country into the three
    major interconnected systems. The Development of a

    National Electricity Network

    Chapter 1: Introduction Page 16 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    Figure 2: The Three Major Interconnections in the Continental United
    States

    Source: Energy Information Administration.

    Because the utilities operated as monopolies, wholesale and retail
    electricity pricing was regulated by the federal government and the
    states. The Public Utility Holding Company Act of 1935 (PUHCA) and the
    Federal Power Act of 1935 established the basic framework for electric
    utility regulation. PUHCA, which required federal regulation of these
    companies, was enacted to eliminate unfair practices by large holding
    companies that owned electricity and natural gas companies in several
    states. The Federal Power Act created the Federal Power Commission* a
    predecessor to FERC* and charged it with overseeing the rates, terms, and
    conditions of wholesale sales and transmission of electric energy in
    interstate commerce. FERC, established in 1977, approved interstate
    wholesale rates based on the utilities* costs of production plus a fair
    rate of return on the utilities* investment. States retained regulatory
    authority over retail sales of electricity, electricity generation,
    construction of transmission lines within their state*s boundaries, and
    intrastate transmission and distribution. Generally, states set retail
    rates based on the utility*s cost of production plus a rate of return.

    In addition to federal and state regulation, some industry participants
    have also self- regulated in part by their voluntary participation in the
    North American Electric Reliability Council (NERC), an organization of
    Federal and State

    Regulatory Framework Developed to Oversee the Electricity Industry

    Chapter 1: Introduction Page 17 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    electricity industry entities that develops and maintains standards for
    operating the electricity systems in the United States. The need for such
    an organization to help coordinate operations of individual utilities
    became apparent as the transmission and distribution systems of the
    individual utilities became connected. Because small changes in supply and
    demand in one network can affect neighboring networks, it is necessary
    that all parties coordinate their operations. When coordination fails, the
    reliability of the system is in jeopardy, as was the case when blackouts
    occurred in the Northeast in 1965. NERC was formed in response to these
    blackouts and continues to play a role in facilitating coordination
    between different utilities* systems.

    Throughout the 1970s and 1980s, a number of events occurred in the
    electricity industry that began to encourage a shift towards more
    competitive electricity markets. These events included rising electricity
    prices charged by utilities, changes in the technology of electricity
    generation, and a shift in regulatory thinking in the United States and
    other countries around the world that had begun to move toward the use of
    markets rather than governments to make decisions about investments to
    meet many public needs.

    Between 1970 and 1982, average residential and industrial electricity
    prices increased by 37 percent and 124 percent respectively, after
    adjusting for inflation. As seen in figure 3, this sharp increase reversed
    a downward trend in prices over the previous decade. 1 These price
    increases were in part the result of investment decisions made by
    utilities and approved by state regulators to build numerous large- scale,
    costly electric power plants. These plants were built on the assumption
    that demand for electricity would increase steadily in the future.
    However, demand did not rise as quickly as anticipated, in part because of
    slower- than- expected economic growth. Regulators allowed companies to
    recover the high costs of building these new power plants through higher
    electricity rates.

    1 Prices are reported in cents per kilowatt- hour. A watt is a unit of
    electrical power. A kilowatt is 1,000 watts. One kilowatt used for one
    hour equals 1 kilowatt- hour. Changing Nature of

    the Electricity Industry Made Restructuring a Possible and Attractive
    Option

    Chapter 1: Introduction Page 18 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    Figure 3: Average Electricity Prices, 1960- 1982

    Source: GAO analysis of data provided by the Energy Information
    Administration.

    In addition to rising electricity prices, significant technological
    changes in both generation and transmission were occurring, which improved
    the efficiency of natural gas- fired power plants. These technological
    improvements made it possible to build smaller, more efficient plants,
    capable of producing electricity at lower cost than the prices charged by
    many of the existing utilities. In addition, advances in transmission
    capabilities also allowed electricity to be moved over longer distances,
    making it more readily available to a wider range of customers. As a
    result, electricity customers, particularly large industrial users, saw
    their electricity prices rising, while advances in technology promised
    lowerpriced power, and they began to exert pressure on legislators and
    regulators to allow them to gain access to electricity at lower prices.
    Restructuring the industry to introduce competition was seen as a way to
    achieve this aim.

    More generally, the evolution of regulatory thinking in the United States
    and other countries around the world shifted toward the use of markets
    rather than governments to make decisions about investments to meet many
    public needs. Economists and public policy analysts, believing in the
    advantages of competition over regulation, promoted the idea that markets

    Chapter 1: Introduction Page 19 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    could drive down costs and prices by reducing inefficiencies and providing
    better incentives for companies to develop new innovations. Legislators
    and regulators passed laws and implemented rules that promoted competition
    across the U. S. economy. For example, during the 1970s and 1980s Congress
    passed laws deregulating the airline, railroad freight shipping, trucking,
    and barge shipping industries. Over the same period, several other
    countries* including New Zealand, Norway, Sweden, and the United Kingdom*
    restructured their electricity industries to introduce competition. Citing
    successes from other deregulation or restructuring efforts, many experts,
    industry participants, and other interested parties began to call for
    restructuring of the U. S. electricity industry.

    Today, restructuring of the electricity industry is occurring within the
    context of a myriad of federal and state laws and regulations related to
    such issues as clean air, clean water, fish and wildlife management,
    recreational uses of waterways and parks, irrigation, flood control, and
    citizens* health and rights. Responsibility for implementing and enforcing
    these laws and regulations is distributed across a wide range of federal,
    state, and local agencies. The result is a natural tension between
    achieving the goals of restructuring the electricity industry and other
    existing laws and regulations.

    The Chairmen of the Subcommittee on Government Efficiency, Financial
    Management and Intergovernmental Relations and the Subcommittee on Energy
    Policy, Natural Resources and Regulatory Affairs, House Committee on
    Government Reform, asked us to determine (1) the goals of electricity
    market restructuring, (2) what actions federal and state agencies have
    taken to restructure the electricity industry, (3) to what extent these
    actions have achieved the goals of restructuring, and (4) what lessons
    have been learned from electricity restructuring efforts made to date.

    To answer these questions, we collected views of stakeholders and industry
    experts, including market participants; trade associations; and federal,
    state, and regional market monitors. We also reviewed relevant studies of
    restructuring, including reports by market monitors, trade associations,
    consumer interest groups, academics, and consultants. In addition, we
    conducted our own evaluation of data provided by the Energy Information
    Administration, FERC, and private sources. We conducted our work from
    November 2001 through November 2002 in accordance with Restructuring
    Occurs

    in a Legislative and Regulatory Environment Designed to Achieve Many Goals

    Objectives, Scope, and Methodology

    Chapter 1: Introduction Page 20 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    generally accepted government auditing standards. For a more detailed
    description of our methodology, see appendix I.

    Chapter 2: Goal of Restructuring Is to Increase Competition in Order to
    Provide Benefits to Consumers

    Page 21 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    The goal of restructuring the electricity industry is to increase the
    amount of competition in wholesale and retail electricity markets, which
    is expected to lead to a range of benefits for electricity consumers,
    including lower prices and access to a wider array of retail services than
    were previously available. Increasing the amount of competition requires
    structural changes within the electricity industry, such as allowing a
    greater number of sellers and buyers of electricity to enter the market.
    Competition is expected to produce benefits for consumers by increasing
    the efficiency of wholesale electricity generation and by encouraging
    innovations in retail electricity services. Such efficiency gains are
    expected to occur as a result of improved incentives for electricity
    suppliers to provide better service at lower prices. Further,
    restructuring is expected to occur while maintaining or enhancing the
    reliability of the electricity system to consumers.

    Based on an extensive review of laws, federal regulations, other relevant
    literature, and discussions with numerous industry experts, there is a
    consensus that the goal of restructuring the electricity industry is to
    increase the intensity of competition in wholesale and retail electricity
    markets. Increasing competition requires that a number of conditions be
    met, including (1) increases in the number of buyers and sellers, (2)
    sufficient public information about electricity prices to enable buyers
    and sellers to make informed decisions, and (3) the ability of sellers to
    enter and exit markets in response to market information. Meeting these
    conditions will require that the traditional system of regulated local
    monopolies, which generated and provided electricity to retail consumers
    at regulated prices, be replaced by a market- based competitive system in
    which sellers and buyers interact to determine the price of electricity.

    More buyers and sellers of wholesale electricity are needed to ensure that
    no single entity has the ability to influence the price of electricity in
    its favor. Under the regulated environment that preceded restructuring,
    utilities held local monopoly positions that encompassed generation,
    transmission, and distribution of electricity to consumers in each
    utility*s area of control. While trading of wholesale electricity between
    separate utilities occurred prior to restructuring, this took place
    primarily between the existing monopoly utilities, thereby limiting the
    number of participants in the wholesale markets. Therefore, in order to
    increase the number of sellers, it is necessary for the monopoly owners of
    transmission and distribution systems* the wires that deliver electricity
    from generators to final customers* to provide access to these systems to
    new market Chapter 2: Goal of Restructuring Is to

    Increase Competition in Order to Provide Benefits to Consumers

    To Meet the Goal of Increasing Competition Requires Structural Changes to
    the Industry

    Competition Requires an Increased Number of Buyers and Sellers.

    Chapter 2: Goal of Restructuring Is to Increase Competition in Order to
    Provide Benefits to Consumers

    Page 22 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    participants. Specifically, new sellers of wholesale electricity will have
    to be able to buy access to the transmission system at nondiscriminatory
    rates in order to sell wholesale electricity to buyers.

    In addition, greater numbers of retail sellers are also needed to offer
    the many retail customers a choice of electricity provider and to
    encourage competition among those providers. Under the regulated retail
    environment, utilities were the sole suppliers of retail electricity to
    final consumers. Even if numerous wholesale sellers emerge, without
    changes in the structure of the retail side of the market, there will be
    few buyers* each utility will still be the sole provider of electricity to
    consumers in its area of control, and therefore the only buyer of
    wholesale electricity. Therefore, in order to increase the number of new
    buyers in the wholesale market, it may be necessary to make changes in the
    retail structure to allow more buyers to compete for electricity in the
    wholesale market. New buyers of wholesale electricity could either be
    private companies that would buy wholesale electricity and compete to sell
    it to retail consumers, or, in some cases, final consumers themselves may
    be able to purchase directly from wholesale suppliers. As in the wholesale
    market, retail competition will require that new participants have
    nondiscriminatory access to transmission and distribution systems. Changes
    in regulation will also be needed to allow consumers to deal directly with
    wholesale sellers or to allow competition among retail providers of
    electricity.

    In order for buyers and sellers of wholesale electricity to make informed
    decisions, they must have access to sufficient information about relevant
    prices, including prices of electricity at locations near them and prices
    of transmission and other charges required to make transactions.
    Wellfunctioning competition requires that no single buyer or seller has
    better information about available prices of electricity than any other
    market participant. If such an information advantage exists, then those
    entities with superior information may be able to take advantage of other
    participants, thereby leading to undesirable outcomes, such as higher
    prices than would exist under competitive conditions. In addition to price
    information, experts have said that there must be adequate information
    about the volumes of trades, and a general increase in the volume of
    electricity traded. In most commodity markets, such information is readily
    and publicly available. However, it is less prevalent in the electricity
    market, and experts generally agree that structural changes are required
    to Adequate market

    information is needed.

    Chapter 2: Goal of Restructuring Is to Increase Competition in Order to
    Provide Benefits to Consumers

    Page 23 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    make information more available. Specifically, experts point to a lack of
    sufficient numbers of transactions in some electricity markets to generate
    reliable information about prices and other market information. 1 In
    addition, there is concern that even in markets with many transactions,
    price and other relevant market data are not made publicly available.
    Academics and consumer advocates have stated that a lack of public data
    limits the ability of nonstakeholders to evaluate restructuring and has a
    detrimental effect on consumer confidence in the restructuring process.

    One of the foundations of a competitive market is the ability of market
    participants to freely enter and exit the electricity industry in response
    to information about opportunities in that and other industries. For
    example, if wholesale electricity prices in one region are high compared
    to other regions* leading to higher than normal profits for electricity
    sellers* this would indicate that new investment in either generation or
    transmission capacity is warranted. Similarly, if there were too much
    generation in a particular area, leading to prices too low to support
    normal profits, companies may wish to exit that area by shutting down
    power plants to avoid losing money. Under competitive conditions, where
    all participants have the same ability to enter or exit the industry,
    private companies can be expected to make new investments or to withdraw
    from a region, depending on market conditions. As a result, it is expected
    that restructuring will lead to more consistent prices across regions than
    under the previous regulated environment. More investment will be
    attracted to high- price regions, thereby causing prices there to fall
    relative to lowerprice regions, while more trade between regions will also
    have the effect of bringing regional prices closer together. For potential
    participants to have freedom to enter and exit electricity markets, they
    must be able to gain access to existing power lines and associated
    facilities under terms that are consistent with their competitors.
    Therefore, owners of power lines must be required to provide access to new
    entrants at terms that do not discriminate compared to existing market
    participants.

    1 For electricity markets to be efficient and for market participants to
    have confidence in the prices, there must be sufficient liquidity, meaning
    that there must be many trades taking place between knowledgeable buyers
    and sellers. Freedom to enter and exit

    the electricity industry is needed.

    Chapter 2: Goal of Restructuring Is to Increase Competition in Order to
    Provide Benefits to Consumers

    Page 24 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Increasing competition is expected to lead to benefits for consumers of
    electricity. In particular, experts believe that competition in wholesale
    markets will provide a way to reduce prices by improving the efficiency of
    producing and delivering electricity. Proponents of restructuring have
    stated that regulated companies and regulators made poor investment
    decisions that raised the average cost of electricity for consumers. These
    investments led to excess investment in electricity generation capacity,
    in part because utilities and regulators overestimated demand growth. Once
    this excess capacity was built, electricity prices had to rise to cover
    the costs to the utilities, even when generating units sat idle. In
    addition, economists and other industry experts argued that monopoly
    utilities had poor incentives to keep overall costs down because they were
    able to pass on all approved costs to consumers in their regulated rates.
    The experts also argued that regulation slowed the pace of technological
    innovation, because even if new cheaper generating units could be built,
    the regulators were still bound to allow the utilities to recover their
    investment costs for older more expensive generating units. Therefore, by
    introducing competition among wholesale suppliers of electricity, experts
    expect new, lower- cost generating plants to be built by nonutility
    companies, leading to greater efficiency in producing electricity and
    ultimately causing prices to fall. As an additional benefit, many newer
    generating plants are much less polluting than the older existing plants.
    Therefore, investment in new generating plants may facilitate improvements
    in air quality, if electricity produced by these cleaner- burning
    generators displaces electricity from older dirtier plants.

    Restructuring of retail electricity markets is expected to (1) provide a
    mechanism for transferring the lower costs achieved through wholesale
    competition to consumers, (2) improve customer service, and (3) lead to
    the introduction of new products and services. Under the old regulatory
    environment, it was argued that monopoly utilities did not have sufficient
    incentives to continually seek ways to provide better and cheaper
    electricity and services to consumers. Introducing competition among
    retail electricity suppliers is expected to allow retail customers to
    choose a supplier on the basis of prices, products, and service. As a
    result, retail suppliers will have an incentive to offer electricity and
    services at prices consumers are willing to pay. Also, in order to compete
    for customers, retail suppliers are expected to develop and introduce new
    products and services.

    Taken together, wholesale and retail competition could also provide a
    mechanism by which the financial risks associated with building new
    electricity generating plants can be transferred from consumers to private
    Increased

    Competition Is Expected to Lead to a Range of Benefits

    Chapter 2: Goal of Restructuring Is to Increase Competition in Order to
    Provide Benefits to Consumers

    Page 25 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    companies and their shareholders. In the old regulatory environment,
    utilities built the bulk of new generating plants after first identifying
    an expected need for the new plants and after gaining approval from state
    regulators. Once approved and built, the cost of building and operating
    the new generators was passed on to consumers, because the utilities were
    allowed to capture these costs in the prices set by the regulators.
    Therefore, consumers bore the financial risk associated with investments
    made by utilities. In a competitive environment, owners of new generating
    capacity are not guaranteed recovery of their costs; therefore, they bear
    the risks of their decisions to build. In this environment, consumer
    prices are determined more by current market conditions than by historical
    investment decisions made by utilities and approved by regulators. For
    this reason, it is argued, technological innovations that lead to lower
    electricity costs will be adopted faster, leading to lower consumer
    prices.

    Because reliability of the electricity system is so important to the
    economy, safety, and security of the country, it is essential that any
    restructuring that occurs does so without adversely affecting reliability.
    Historically, reliability has been maintained largely by utilities owning
    enough generating capacity to serve even the highest demand for
    electricity under conditions in which some of the capacity may be
    inoperable. As a result, some power plants operated only a few hours per
    year. Under restructuring, the total capacity required to maintain
    reliability could be reduced for three reasons. First, restructuring is
    expected to broaden electricity markets, which will allow individual local
    areas to draw electricity from power plants across a wider region, thereby
    reducing the amount of capacity the local area must own to meet its
    demand. Because different localities will have their highest demands at
    different times, idle power plants in one locality could serve other
    localities experiencing high demand and this reduces the total generating
    capacity necessary to maintain a reliable supply. Second, under
    restructuring, some consumers will have enhanced incentives to conserve
    power during peak demand periods when electricity prices are high. Such
    incentives will reduce the total consumption of electricity during the
    highest demand periods, thereby reducing the total capacity required to
    maintain reliability. Third, some consumers may enter contracts that allow
    the system operator to shut off their power in times of electricity
    shortage to Restructuring

    Expected to Occur While Maintaining or Improving System Reliability

    Chapter 2: Goal of Restructuring Is to Increase Competition in Order to
    Provide Benefits to Consumers

    Page 26 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    avoid more general supply disruptions. In return, these consumers would be
    compensated for the disruption. 2

    Developing competitive wholesale and retail electricity markets will not
    be easy. Among other things, it will require the creation of an
    environment that encourages new participants and the development of
    adequate and reliable information in order for these participants to make
    informed investment decisions, while maintaining reliability of the
    electricity system. In addition, restructuring is occurring within the
    context of other federal and state laws and regulations, including those
    related to clean air, clean water, and endangered species. Therefore, in
    developing competitive markets, it will take time to deal with these
    issues in a way that instills confidence in both market participants and
    consumers.

    2 Such contracts can and do also exist under the old regulated
    environment, but the incentives for such contracts are greater when
    electricity prices reflect the current levels of supply and demand, as
    would be the case under full restructuring, than when prices are generally
    fixed across most periods, as has generally been the case in the regulated
    environment. Conclusion

    Chapter 3: Federal and State Efforts Are Underway to Develop Competitive
    Markets

    Page 27 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Federal efforts to promote competition have focused on promoting and
    opening access to regional wholesale electricity markets, including FERC*s
    most recent proposal to create a standard market design for all electric
    transmission providers. Twenty- four states and the District of Columbia
    have enacted legislation and/ or issued regulatory orders to allow
    customers to choose their retail electricity supplier. The remaining 26
    states have not taken such actions and continue to require retail
    customers to purchase electricity from their traditional utility.

    The federal government has taken a series of actions over the past decade
    that has promoted competition in wholesale electricity markets. 1 The
    Energy Policy Act of 1992 (EPACT) allowed some nonutility companies to
    participate in wholesale markets without owning their own transmission
    lines, an opportunity that was previously limited. 2 EPACT also authorized
    FERC to require utilities, on a case- by- case basis, to provide other
    wholesale buyers and sellers access to their transmission lines. By making
    it easier for nonutility generators to enter the wholesale market for
    electricity, EPACT not only expanded competition, but also facilitated the
    shift in how electricity prices were set, since utilities could purchase
    electricity from nonutility wholesale generators and pay market- based
    prices, traditional cost- of- service prices, or a combination of both.

    In April 1996, to remedy claims of undue discrimination in access to the
    transmission system, FERC issued Orders 888 and 889, opening the
    transmission systems of investor- owned utilities to all qualified
    wholesale buyers and sellers of electricity. Commonly known as the *open
    access rule,* Order 888 required that transmission line owners offer
    transmission services to other transmission users under comparable terms
    and conditions that they provide for themselves. The vertically integrated
    nature of utilities in the past had not allowed independent electricity
    suppliers equal access to transmission systems. In promulgating the
    regulation, FERC found that by limiting the extent to which independent
    electricity suppliers could provide service to electricity customers,
    growth of competitive electricity generation markets had been hindered.
    Order 888 also required utilities to separate their generation and
    transmission

    1 Restructuring is not currently planned to introduce competition to the
    transmission or distribution of electricity. 2 Prior to EPACT, this
    ability was limited to a small group of companies that generally produced
    electricity through cogeneration processes and/ or the use of renewable
    energy. Chapter 3: Federal and State Efforts Are

    Underway to Develop Competitive Markets Federal Efforts Have Promoted
    Competition and Opened Access to Regional Wholesale Markets

    Chapter 3: Federal and State Efforts Are Underway to Develop Competitive
    Markets

    Page 28 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    businesses* a process referred to as unbundling* to prevent discriminatory
    practices in providing transmission services, such as denying competitors
    equal access to transmission lines. This unbundling was accomplished by
    requiring utilities to separate their transmission service functions from
    other business activities. Order 888 also encouraged utilities to form
    independent system operators (ISO), 3 to which they could transfer
    operating control (but not ownership) of their transmission facilities,
    thereby satisfying the unbundling requirement contained in the order.
    Since Order 888 was issued, six ISOs have been formed and are operating,
    each with its own set of operating rules. 4

    FERC also found that to effectively ensure nondiscriminatory access to the
    transmission system, up- to- date information about transmission must be
    unrestricted and public to all transmission users. To meet this need, FERC
    issued Order 889, which required all privately owned utilities to
    participate in the Open Access Same- Time Information System (OASIS).
    OASIS is an interactive Internet- based database containing information on
    available transmission capacity, capacity reservations, and transmission
    prices. By providing timely access to all qualified users regarding
    transmission market information, the goal of OASIS was to facilitate the
    functioning of competitive electricity markets.

    After passage of Orders 888 and 889, FERC found evidence that the
    traditional management of the transmission system was still inadequate to
    support the open access and efficient and reliable operation needed for
    the continued development of competitive electricity markets, and that
    continued discrimination in the provision of transmission services by
    vertically integrated utilities may also be impeding fully competitive
    electricity markets. In December 1999, FERC issued Order 2000, which

    3 An ISO is an entity encouraged by FERC to manage the transmission system
    as the electric industry in the United States is restructured. An ISO is
    to control the power system or grid without special interest, and is to
    own no generation, transmission, or load. Therefore, the ISO is intended
    to run the system fairly, for the benefit of all market participants.

    4 These ISOs are California ISO; ISO New England; Midwest ISO; New York
    ISO; Pennsylvania, New Jersey, and Maryland Interconnect (PJM); and
    Electric Reliability Council of Texas (ERCOT) ISO. ERCOT established an
    ISO in 1996 to satisfy the requirements of the Public Utility Commission
    of Texas for deregulating the wholesale electricity market in the state.
    The wholesale market in the ERCOT region is basically isolated from other
    U. S. markets because its transmission system has only minor
    interconnections to other U. S. transmission systems. FERC has limited
    jurisdiction over the region because the ERCOT market is essentially
    intrastate.

    Chapter 3: Federal and State Efforts Are Underway to Develop Competitive
    Markets

    Page 29 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    encouraged all privately owned utilities to voluntarily place their
    transmission facilities under the control of a broader market entity
    called a regional transmission organization (RTO). As a result, ISOs
    created under Order 888 would be supplanted by larger RTOs, which together
    would cover the entire nation. The rationale behind FERC*s approach to
    forming RTOs was that the nation*s transmission systems should be brought
    under regional control in order to eliminate the remaining discriminatory
    practices in use, better meet the increasing demands placed on the
    transmission system, improve management of system congestion and
    reliability, and achieve fully competitive wholesale power markets. Order
    2000 did not specifically require RTO participation; however, if a utility
    opts not to join an RTO, it is required to explain why it is not doing so.

    Since issuing Order 2000, FERC has approved one organization as an RTO and
    conditionally approved three with the provision that to receive full
    approval they take significant actions to further conform to RTO
    requirements described in Order 2000. These organizations operate in 21
    states and the District of Columbia, and in Manitoba, Canada. (See table 1
    for RTO approval decisions by FERC.)

    Table 1: Status of RTOs Approved by FERC as of November 2002 Organization
    Approval Conditional

    approval a Area of operation b

    GridFlorida X Florida GridSouth X North Carolina, South Carolina Midwest
    ISO X Illinois, Indiana, Iowa, Kentucky, Michigan,

    Minnesota, Missouri, Montana, North Dakota, Ohio, South Dakota, Virginia,
    Wisconsin, and Manitoba (Canada) PJM X Delaware, District of Columbia, New
    Jersey,

    Maryland, Ohio, Pennsylvania, Virginia, West Virginia

    Source: FERC. a Certain organizations that have received conditional FERC
    approval are not yet operational as

    RTOs, in part because FERC has overlapping jurisdiction with certain state
    regulatory authorities on the formation of RTOs and because some states
    are still in the process of reviewing RTO participation for their
    utilities. b Includes all or parts of listed states.

    Despite these efforts, FERC has acknowledged that significant impediments
    remain to competitive wholesale markets. For example, according to FERC,
    recent events such as the collapse of Enron and the California electricity
    crisis reveal the need for clear, stable market rules

    Chapter 3: Federal and State Efforts Are Underway to Develop Competitive
    Markets

    Page 30 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    and overdue infrastructure investment in the U. S. wholesale electricity
    industry. As a result, in July 2002, FERC issued a notice of proposed
    rulemaking to provide a standard market design for all electric
    transmission providers. FERC*s fundamental goal in this initiative is to
    create *seamless* wholesale electricity markets, nationwide, that allow
    sellers to transact easily across transmission boundaries and allow
    customers to receive the benefits of a lower- cost and more reliable
    electricity supply. Accordingly, FERC*s standard market design proposal
    contains a wide range of rules to standardize the structure and operation
    of wholesale electricity markets and transmission services. Among other
    things, it (1) describes the rules for how a portion of the nation*s
    electricity will be exchanged in organized markets, (2) defines a new
    transmission service, (3) establishes a congestion management system to
    ensure that the transmission system is managed effectively and that users
    recognize the true value of their actions, (4) lays out new rules to
    assure that all transmission owners and operators recover their costs, (5)
    establishes new market power mitigation and monitoring requirements, and
    (6) sets out long- term planning and resource adequacy requirements.

    To date, the proposed standard market design rule has generated
    significant comments from numerous organizations reflecting concerns and
    reservations about the scope and details of the proposal. For example, the
    Chairman, FERC, has noted that one of the most widely voiced concerns
    about FERC*s proposal is that it could cause low- cost states* electricity
    prices to rise as competition allows sellers of electric power in these
    states to sell to states with higher prices. In addition, others have
    stated that the western U. S. market has unique characteristics that may
    not readily lend itself to FERC*s proposed standard market design. In
    response to these and other comments and concerns, FERC has extended the
    comment period to January 10, 2003, for all interested parties to file
    comments on certain features of its proposal. In addition, FERC has
    invited interested parties to comment on more than 70 specific issues
    described in its proposal and has convened a series of conferences to
    address its proposal. FERC estimates that a final rule could be published
    during the summer of 2003.

    Chapter 3: Federal and State Efforts Are Underway to Develop Competitive
    Markets

    Page 31 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    To date, 24 states and the District of Columbia have enacted legislation
    and/ or issued regulatory orders to open their retail markets to
    competition by implementing retail access, thereby allowing customers to
    choose their own electricity suppliers. 5 Of these, 17 states and the
    District of Columbia continue to be active in implementing retail access.
    6 Under retail access, the local distribution utility continues to provide
    transmission and distribution services. State restructuring legislation or
    regulatory orders have either required or encouraged utilities to divest
    generation assets, in part to encourage competition among generating
    companies. In addition, in some states, metering and billing are subject
    to competition, while in others these services are combined with
    distribution services.

    Most of the 17 states that have begun to open their retail markets to
    competition have simultaneously frozen retail electricity prices at (or
    below) the regulated rate in place before the onset of retail competition.
    For example, in Michigan, the two largest utilities agreed to provide a 5
    percent rate reduction to all residential customers. The reduction began
    in June 2001 and will extend through December 2003* after which the
    utilities may still not increase rates until either December 2013 or until
    the Michigan Public Service Commission determines that certain conditions
    are met. In addition, most of these states usually allow customers who
    choose not to select an alternative service provider or whose competitive
    supplier has stopped offering service to continue to be served by their
    local distribution utility.

    The remaining seven states that have enacted legislation and/ or issued
    regulatory orders have either delayed or suspended implementation of
    retail access. Six of these states* Arkansas, Montana, Nevada, New Mexico,
    Oklahoma, and West Virginia* have delayed implementation of retail access
    by, for example, choosing a new date to move forward. One state,
    California, suspended its retail- access program in September 2001

    5 These states are Arizona, Arkansas, California, Connecticut, Delaware,
    Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New
    Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon,
    Pennsylvania, Rhode Island, Texas, Virginia, and West Virginia.

    6 These states are Arizona, Connecticut, Delaware, Illinois, Maine,
    Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York,
    Ohio, Oregon, Pennsylvania, Rhode Island, Texas, and Virginia. Note:
    Retail access in these states is either currently available or will soon
    be available; each state*s retail access schedule varies according to its
    legislative mandates or regulatory orders. In Oregon, for example, no
    customers are currently participating in the state*s retail access
    program, but the law allows nonresidential customers access. Some States
    Have

    Opened Retail Markets to New Sellers, While Others Have Not Pursued
    Restructuring Efforts

    Chapter 3: Federal and State Efforts Are Underway to Develop Competitive
    Markets

    Page 32 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    after experiencing a prolonged period of high prices and power shortages
    but has not repealed its overall plans to restructure.

    The remaining 26 states have not enacted legislation or issued regulatory
    orders to implement retail access, and they continue to require retail
    customers to purchase electricity from their traditional utility. 7 Of
    these states, 8 continue to study the issue of restructuring, while 18
    have decided that electricity restructuring is not in their best interest
    at this time and are not actively considering it, according to a recent
    report by the National Regulatory Research Institute. These states see
    little benefit from opening their electric industries to competition
    anytime soon, since most of these states have relatively low electric
    rates compared with the rest of the nation. In contrast, states that have
    opened their retail electricity markets to competition, such as
    Pennsylvania, New York, and most of New England, have historically had
    higher than average U. S. retail electricity prices. Figure 4 shows the
    status of state electricity restructuring activity as of November 2002, as
    well as average retail electricity prices in 1992, when widespread
    wholesale restructuring began with the passage of EPACT.

    7 These states are Alabama, Alaska, Colorado, Florida, Georgia, Hawaii,
    Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi,
    Missouri, Nebraska, North Carolina, North Dakota, South Carolina, South
    Dakota, Tennessee, Utah, Vermont, Washington, Wisconsin, and Wyoming.

    Chapter 3: Federal and State Efforts Are Underway to Develop Competitive
    Markets

    Page 33 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Figure 4: Status of State Electricity Restructuring Activity as of
    November 2002 and Average Prices as of 1992 a

    Source: Energy Information Agency. a Average prices are in units of cents
    per kilowatthour, in 1992 dollars.

    b States that took legislative and/ or regulatory action have some degree
    of shading. States not taking such actions are shown in white.

    Despite FERC*s efforts, significant impediments remain to the development
    of competitive wholesale markets. FERC*s efforts to develop regional
    transmission organizations and standardize rules between them are in the
    early stages of development, with a number of contentious issues to still
    be resolved. Further, while nearly half of the states moved forward to
    restructure their retail markets, some states* when faced with the
    uncertainties that accompany restructuring* decided to delay or suspend
    their efforts. Continuing to address these restructuring issues will take
    considerable time and effort on the part of FERC and the states.
    Conclusion

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 34 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    It is not possible to determine fully the extent to which the development
    of competitive markets* the goal of restructuring* has been achieved to
    date. Our review of studies related to measuring the performance of
    restructuring indicates a mixed assessment of how far along the industry
    is in developing competitive markets and the extent to which expected
    benefits have been achieved. While most studies found progress has been
    made in introducing competition in wholesale electricity markets, results
    at the retail level have been difficult to measure, and, where measurement
    has been possible, there is disagreement about the extent to which
    expected benefits of restructuring have been achieved. Our own evaluation
    of the performance of restructuring was also inconclusive. With respect to
    the goal of increasing competition, restructuring efforts by the federal
    government and the states have broadened electricity markets by making
    them more regional and allowing new generation companies to participate.
    However, we could not determine the extent to which expected consumer
    benefits have been achieved, in part because restructuring is in its early
    stages, but also because of a lack of data necessary to measure key
    benefits.

    In our review of more than 30 studies that examined the performance of the
    electricity industry since restructuring began, we found general agreement
    that some progress has been made in developing more competitive wholesale
    electricity markets. 1 For example, the development of ISOs and the
    beginning of RTO formation is cited as having caused greater numbers of
    sellers and buyers to have access to electricity over wider geographic
    regions than was previously possible. Some of these studies also conclude
    that this increase in competition has led to lower prices for retail
    electricity customers. However, other studies dispute the claim that
    retail electricity customers are better off under restructuring and point
    to episodes of high prices, including the crisis of 2000 and 2001 in
    California and the West, as evidence that flaws in restructuring have led
    to undesirable outcomes. A number of studies also pointed to continuing
    problems with the scope of restructuring, including the fact that most
    retail electricity customers are insulated from changes in wholesale
    prices. As such, these customers typically pay a fixed price, regardless
    of changes in the underlying cost of acquiring the electricity in
    wholesale markets. Therefore, these customers do not respond to periods of
    high wholesale prices by reducing their consumption of electricity as they
    might if they

    1 A bibliography of studies can be found in appendix IV. Chapter 4: The
    Extent to Which the Goal of

    Competitive Electricity Markets Has Been Achieved Is Uncertain

    Review of Studies Indicates a Mixed Picture of Competition and Uncertainty
    Regarding Benefits

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 35 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    had to pay those higher prices directly. As we recently reported, there is
    general agreement among economists and other experts that the absence of
    price- responsive customers may enable electricity sellers to charge
    higher than competitive prices. 2

    The combined efforts of the federal government and some states have
    broadened electricity markets, expanding their scope in many cases from a
    local to a regional focus. Along with this broadening of the markets have
    come increases in the number of buyers and sellers entering the wholesale
    electricity markets. Broader markets may also be improving the
    availability and quality of electricity pricing information, but there are
    indications, such as a lack of transparent electricity transactions, that
    the industry is still lacking in this area. There has also been a great
    deal of investment in new power plants, indicating that entry into the
    industry has occurred.

    Early restructuring efforts have led the electricity industry to
    experience a significant change in the way power is sold across state
    lines. Four ISOs* California, PJM, New York, and New England* currently
    operate centralized power markets in which electricity suppliers and
    buyers submit bids to sell and buy power. Sellers from across these
    regions and states compete together in these centralized markets,
    expanding the geographic scope of the markets. In addition to operating
    power markets, the ISOs manage the generation and transmission of
    electricity to maintain reliability of the system.

    In addition to the introduction of more regional wholesale electricity
    markets, private electricity trading hubs have emerged, expanding the
    scope of markets even further and improving the ability of buyers and
    sellers to manage risk. Specifically, these trading hubs provide a market
    for buying and selling electricity, as well as for trading electricity
    futures and various derivatives outside centralized regional wholesale
    markets. 3 Simply put, a trading hub is a location on the power grid
    representing a delivery point where ownership of electric power changes
    hands, although

    2 U. S. General Accounting Office, Restructured Electricity Markets:
    California Market Design Enabled Exercise of Market Power, GAO- 02- 828
    (Washington, D. C.: June 21, 2002). 3 Derivatives are financial products*
    for example, options, futures, and other contracts* the value of which is
    derived from underlying instruments, such as company stocks, electricity
    and natural gas commodities, or other financial instruments. GAO
    Evaluation

    Indicates Some Progress Made in Developing Competitive Markets but
    Questions Remain

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 36 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    the actual trades may take place in numerous locations. The emergence of
    trading hubs is an important development in the process of developing
    competitive electricity markets because hubs provide market participants a
    way to trade a standardized increment of electricity. However, of the 10
    major hubs that have been developed to date, only a few account for the
    bulk of power trading. Furthermore, there are indications that the future
    is somewhat cloudy. For example, the New York Mercantile Exchange recently
    announced that it was discontinuing trading of electricity futures, citing
    a lack of trading volume. It remains unclear whether these types of hubs
    will reemerge and become viable in the future electricity industry
    environment.

    Similarly, development of Internet- based trading systems, such as
    EnronOnline, Dynegydirect, and Intercontinental Exchange, has further
    changed the ways in which electric power is sold. Such systems provide an
    additional market for both physical energy (electricity and natural gas
    products) and energy derivatives to be bought and sold. Experts say that
    in other commodity markets the existence of multiple markets has resulted
    in improvements in the quality and availability of price information.
    Recently, in the electricity industry, there have been accusations that
    large market participants who had superior market information manipulated
    these systems, and some companies such as Enron have stopped such
    Internet- based trading.

    Increases in the number of wholesale electricity sellers* one of the key
    structural changes required to implement competition* has accompanied the
    opening of regional wholesale electricity markets, trading hubs, and
    Internet- based trading systems. The introduction of ISOs and RTOs has
    allowed more market participants to compete effectively and allowed all
    the suppliers in the region to compete in a broader marketplace. In
    addition, since 1992 FERC has granted authority to 850 companies to charge
    *market- based* rates, which enables them to participate in competitive
    wholesale markets. FERC*s approval to charge market- based rates enables
    these companies to participate as sellers in the various wholesale markets
    that have emerged. If these companies are not granted authority to charge
    market- based rates they can only sell power in interstate wholesale
    markets at regulated rates, based on their costs, which must also be
    approved by FERC.

    In addition to an increase in the number of wholesale sellers, some states
    are witnessing an increase in the number of retail sellers who are
    competing with utilities to sell electricity to consumers. For example,
    one study, conducted by the National Regulatory Research Institute, found
    that

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 37 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    in the 18 states that have operated restructured retail markets, there
    were 75 companies competing with these states* utilities to sell
    electricity to retail customers. These companies must either buy their
    electricity from the wholesale markets or generate it themselves, and when
    they buy electricity from the wholesale market, this increases the number
    of wholesale buyers as well, another key structural change needed to
    implement competition. In providing technical comments on a draft of this
    report, FERC stated that most states that have implemented retail
    competition fear that too few new retailers have entered the market to
    support effective retail competition.

    There have also been improvements in the availability and reliability of
    price and other market information* another requirement of competitive
    markets. Increased numbers of transactions, whether executed through
    institutions such as ISOs or RTOs, through private trading hubs, or
    through other types of transactions, provide a critical means of
    developing price information and making it available. While the
    development of broader electricity markets has contributed to the
    availability and quality of price data, there are indications that the
    electricity industry is still in the early stages of development in this
    area. For example, in a recent FERC conference on market monitoring,
    several conference participants stated that there is still not enough
    trading in many markets across the country to ensure confidence that the
    prices observed in those markets are accurately representative of the
    prices at which electricity is generally trading there. In addition,
    recent concerns by FERC and others that some market participants may have
    misreported price information used in various publications have raised
    questions about the reliability of publicly available information.

    Another indication of the emergence of competition is that new suppliers
    are able to enter the market. In recent years, there has been a large
    increase in the amount of new generating capacity that has been built.
    Specifically, from 1995 through July 2002 there has been about 175,000
    megawatts (MW) of new generating capacity built in the United States, with
    most of this capacity added since 1998. 4 These new generating plants
    added about 23 percent to the total generating capacity that existed in
    1995. In addition, nonutility companies own most of the new generating
    capacity built in recent years, which has served to increase in the number

    4 A megawatt is a measure of electric power equal to 1,000, 000 watts. One
    megawatt of generating capacity can serve the needs of about 750 homes.

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 38 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    and capabilities of these new types of electricity sellers in wholesale
    markets. Specifically, nonutilities accounted for about 148,000 MWs of
    generating capacity, or about 85 percent of the 175,000 MWs added from
    1995 through July 2002. Investor- owned utilities (IOUs) accounted for the
    remaining 15 percent. Figure 5 shows the new investments in generating
    capacity from 1995 through July 2002.

    Figure 5: Generating Capacity Added, 1995 through July 2002

    Source: GAO analysis of PowerDAT data provided by Platt*s/ RDI. a 2002
    reflects data through July.

    The growth rate of generating capacity over these years has been far
    higher than the average growth rate of demand, meaning that new generating
    plants will likely displace some generation from existing facilities. This
    is especially likely because most of the new generating units burn natural
    gas and employ technology that is currently less costly per unit of
    electricity generated than many older generating plants, making the former
    more economically competitive and able to sell power profitably at lower
    prices. Any displacement of older plants powered by fossil fuel by power
    plants that burn natural gas would have a positive effect on air quality
    because, in addition to running at lower cost, the newer plants create far
    fewer emissions per unit of electricity generated than the older

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 39 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    plants. However, over the past year, a large number of proposed power
    plants have been canceled, in part as a result of poor market conditions,
    including tighter credit requirements from banks and investors, slower
    economic activity, and the financial difficulties of several large energy
    companies.

    Available data and information do not allow a determination of the extent
    to which restructuring efforts to date have led to the expected benefits
    for consumers of lower electricity prices and a wider array of services.
    While electricity prices have generally fallen since restructuring began
    in the 1990s, it is not clear how much of the decline was attributable to,
    or simply coincided with, restructuring efforts. Further, periods of
    higher prices have also occurred in some places and during some periods of
    time. Similarly, new electricity products have emerged, both in
    restructuring and nonrestructured states, making it difficult to conclude
    that these new products are the direct result of restructuring efforts. In
    addition, while operating efficiency for power plants appears to have
    increased since restructuring began, this is a continuation of a trend
    that began prior to restructuring, and it is therefore not clear how much
    of the improvement can be attributed to, or is simply coincident with,
    restructuring.

    Throughout the 1990s* the period during which restructuring began at the
    national level and expanded to individual states* average retail prices
    for electricity fell, after adjusting for inflation. Specifically, from
    1990 through 1999, average retail prices for residential customers fell by
    about 14 percent, and prices for industrial customers fell by about 23
    percent. However, in 2000, retail prices for industrial customers rose,
    and, in 2001, prices rose for both industrial and residential customers.
    Over the entire period from 1990 through 2001, retail residential and
    industrial prices fell by about 13 and 15 percent, respectively. As shown
    in figure 6, the decrease in prices throughout the 1990s continues a trend
    that began in 1983. Restructuring*s

    Impact on Prices and Other Expected Benefits Remains Unclear

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 40 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Figure 6: Average Electricity Prices, 1960- 2001

    Source: GAO analysis of data provided by the Energy Information
    Administration.

    To try to determine the effect of restructuring efforts on retail prices,
    we examined these price changes in the context of state restructuring
    status, distinguishing between (1) states that implemented restructuring
    plans, (2) states that made restructuring plans but delayed their
    implementation, and (3) states that did not develop restructuring plans. 5
    In addition, we focused on the years from 1997 through 2001, which
    encompass the period during which individual states began restructuring
    their retail markets. In so doing, we found that those states that
    implemented some restructuring efforts generally experienced decreases in
    residential retail prices while

    5 For the purpose of this analysis, we modified the Energy Information
    Administration*s classification of states* restructuring status as of
    November 2002 by grouping California, which is currently listed as
    *suspended,* with the 17 *active* states. We did this because California
    had an active retail access program from April 1998 until September 2001.
    Using this modified classification, 18 states and the District of Columbia
    have implemented restructuring plans, 6 states made restructuring plans
    but delayed their implementation, and 26 states did not develop
    restructuring plans. All prices have been adjusted for inflation and are
    expressed in terms of 2001 dollars. In addition, the average prices we
    report are a simple average across states, as opposed to an average
    weighted by the volumes of electricity consumed in each state.

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 41 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    prices generally increased in states that did not implement restructuring
    during the same period. For example, over the entire 4- year period,
    average residential prices fell by about 4 percent in states that
    implemented restructuring, but rose by 4 percent in states that delayed
    and by 3 percent in states that made no restructuring plans. Over the same
    4- year period, overall retail prices for industrial customers generally
    rose, but we found that the price increases were generally smaller for
    states that implemented some restructuring efforts compared to states that
    either delayed or made no restructuring plans. Specifically, we found that
    on average, restructuring states witnessed almost no change in average
    retail industrial prices over the entire four year period from 1997
    through 2001, while states that delayed their restructuring plans or did
    nothing had 24 and 5 percent price increases, respectively. As discussed
    previously in this report, residential retail prices rose in 2001, and
    industrial retail prices rose in both 2000 and 2001. 6

    While restructuring may have contributed to the overall reduction in
    retail prices in the 1990s, and may account in part for the greater
    decreases in restructuring states in the period from 1997 through 2001,
    there are other factors that could have affected prices. For these and
    other reasons, we were unable to determine the effect of restructuring on
    retail prices. For example, this period also witnessed reductions in the
    prices of natural gas, coal, and other fuels used to generate electricity,
    as well as the introduction of cost- saving technologies at new and
    existing power plants, all of which may have led to price reductions. We
    also found that states that restructured generally reduced and froze
    retail prices at the time they restructured in the expectation that
    restructuring would lead to lower prices overall and to ensure that their
    retail customers benefited immediately. Therefore, the greater price
    reductions observed in these restructured states may reflect state
    regulator*s expectations, rather than what restructuring actually
    achieved.

    Expert opinion is also mixed on the impact of restructuring on retail
    prices. Some experts attribute lower retail prices in part to
    restructuring and increased competition in wholesale and retail markets,
    while others, citing periods of higher prices, point to flawed
    restructuring as the cause,

    6 The data used in figure 6 differ from those used in the calculations of
    prices from 1997 through 2001. The data used to generate the figure
    include prices from utilities, as well as energy service providers selling
    to retail customers, while the data used to calculate changes from 1997
    through 2001 only reflect utility prices* state- by- state data for energy
    service providers were not available.

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 42 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    claiming that the electricity industry cannot be made to behave
    competitively. Still others have stated that flaws in restructuring
    efforts, including frozen retail rates that made it difficult for new
    sellers to compete with existing utilities, have reduced what impact
    restructuring could have had on lowering retail prices. Finally, because
    electricity frequently crosses state borders as generators in one state
    sell to buyers in another, prices in any single state will often affect
    prices in adjacent states. This further complicates the picture, making it
    difficult to sort out the effect of restructuring on overall retail
    electricity prices.

    Another expected benefit of restructuring, new electricity products, has
    become available in recent years, but new products have occurred in both
    restructured and nonrestructured states. These products include green
    power (electricity produced by renewable resources), electricity sold at a
    price that varies according to time of use or market conditions, and
    energy service contracts that provide additional services to consumers,
    such as energy audits or energy efficiency improvements. For example, in
    several states, green power has emerged as a product for which consumers
    are willing to pay more. One recent study found that in 18 states that had
    actively pursued retail restructuring, companies were offering their
    customers 49 different ways to buy electricity generated by renewable
    sources. New products are also emerging in nonrestructured states. For
    example, in Colorado* a state that has not restructured* the local
    monopoly utility has also offered to sell electricity generated by
    renewable sources to its customers. Because new products have emerged in
    both restructured and nonrestructured states, and because there is no
    central source of data on the development of new products, we were unable
    to determine what effect restructuring has had on the development of these
    products.

    While it appears that there have been efficiency gains in the operation of
    electricity generating plants, another expected benefit of restructuring,
    we find that it is not possible to determine whether restructuring caused
    or simply coincided with these gains. In promoting restructuring, experts
    believed it would improve efficiency by, among other things, reducing the
    amount of excess generating capacity required to maintain a reliable
    electricity system. Throughout the 1990s, power plants did experience
    increases in their intensity of use* reducing excess capacity during these
    years. However, this was a continuation of a trend that began in 1983,
    prior to restructuring. In addition, the upward trend in intensity of
    power plant use was reversed in 2000 and 2001. Some experts attribute part
    of the overall efficiency gains to restructuring, stating that increased
    competition improves incentives for using existing power plants more
    intensively. They

    Chapter 4: The Extent to Which the Goal of Competitive Electricity Markets
    Has Been Achieved Is Uncertain

    Page 43 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    also attribute the fall in intensity of power plant use in 2000 and 2001
    in part to the large number of new plants that began operation during
    those years and to the fact that overall demand grew more slowly than
    expected. Overall, due to data limitations, we were unable to determine
    the impact of restructuring on the efficiency of power plant operations.
    Figure 7 shows the average capacity factor for power plants from 1949
    through 2001. The capacity factor for generating plants shown in the
    figure measures the proportion of total generating capacity that is
    actually produced during each year.

    Figure 7: Overall U. S. Capacity Factor, 1949- 2001

    Source: GAO analysis of data provided by the Energy Information
    Administration.

    Competitive electricity markets are clearly in the early stages of
    development. While restructuring efforts have broadened electricity
    markets and increased the number of market participants (both buyers and
    sellers), the extent to which expected benefits have been achieved is
    uncertain. Because the development of competitive markets and the expected
    benefits from competition are central to restructuring efforts,
    understanding how far along the road to greater competition we have come
    and what remains to be done in moving forward is important. Conclusion

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    In determining the goals of electricity restructuring, reviewing actions
    that federal and state agencies have taken to restructure the industry,
    and determining whether those actions have achieved the goal of increased
    competition and the expected benefits of restructuring, we have identified
    key lessons learned from experience to date that relate to the structure
    of electricity markets and market oversight. The lessons presented here
    point out potential limitations to the extent of competition in
    electricity markets and to the expected benefits of restructuring. In
    addition, we discuss the need for improved monitoring of restructured
    electricity markets.

    In its effort to promote competitive wholesale markets, FERC has
    historically approved a wide range of specific rules that govern the
    operation of individual transmission system operators and centralized
    wholesale markets under its jurisdiction. FERC has acknowledged the lack
    of a single set of rules for transmission access or wholesale market
    operations. Furthermore, FERC has stated that the absence of consistent
    rules has permitted (1) rules that can be used to discriminate and lead to
    increased transmission costs and system reliability problems and (2)
    various design flaws in wholesale markets and transmission services that
    have created operational problems within and between wholesale markets.
    For example, a variety of inconsistent rules governing the operation of
    power plants in PJM, New York ISO, and ISO New England have made it more
    costly for participants in these electricity markets to buy and sell from
    each other. Overall, the presence of different rules and operations limits
    the extent of possible competition between these markets. Limiting the
    extent of competition between wholesale markets will, in turn, limit the
    expected benefits from restructuring.

    Recently, FERC*s proposed standard market design rulemaking was developed
    largely to address the variations in rules and operating procedures for
    the wholesale markets and transmission services. Through its proposal,
    FERC plans to bring a level of standardization to market rules and
    procedures that will remedy these problems and provide a level playing
    field for all entities that seek to participate in wholesale electricity
    markets. Chapter 5: Lessons Learned from Electricity

    Restructuring and Recommendations Experience with Restructuring to Date
    Provides Five Lessons Learned

    Different rules in electricity systems limit the ability to achieve
    benefits from competition

    Chapter 5: Lessons Learned from Electricity Restructuring and
    Recommendations

    Page 45 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    FERC does not have regulatory authority over all entities in wholesale
    electricity markets. Specifically, FERC does not have jurisdiction over
    power sales by federally owned entities (e. g., the Bonneville Power
    Administration, the Tennessee Valley Authority, and the Western Area Power
    Administration), publicly owned utilities, or most cooperatively owned
    utilities. For example, the electricity needs of Nebraska are entirely
    served by municipal, cooperative, and other suppliers not explicitly
    subject to FERC oversight. As a result, a patchwork of rules has developed
    governing both restructured and nonrestructured jurisdictions, with large
    areas of the country operating primarily outside the scope of FERC*s
    authority.

    While many of these nonjurisdictional entities are smaller than many
    investor- owned utilities, taken together they serve large areas of the
    country and provide service to about 25 percent of the nation*s demand for
    electricity. As shown in figure 8, the areas served by entities not under
    FERC jurisdiction cover a wide area, especially in the Southeast, Midwest,
    and West. FERC*s limited jurisdiction

    in wholesale markets limits the ability to achieve benefits from
    competition

    Chapter 5: Lessons Learned from Electricity Restructuring and
    Recommendations

    Page 46 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Figure 8: Areas Served by Entities Subject to FERC Jurisdiction, 2002

    Source: GAO analysis of PowerMap data provided by Platt*s/ RDI. Notes:
    Areas served by entities generally not subject to FERC jurisdiction
    include areas served by publicly owned entities such as municipal
    utilities, cooperative utilities, and others.

    Data on service territories include some overlaps, indicating that some
    areas are served by both entities subject to FERC jurisdiction and
    entities not generally subject to FERC jurisdiction, particularly some
    areas in Pennsylvania, Michigan, Wisconsin, and Iowa. Data reflected above
    depict those areas of overlap as not generally subject to FERC
    jurisdiction.

    Unshaded portions of the map indicate either that no electric service is
    provided or the service area is very small.

    In addition to covering wide areas of the country, these nonjurisdictional
    entities also own about 30 percent of the transmission lines nationwide.
    FERC has only limited jurisdiction over the transmission services of such
    entities. As shown in figure 9, the lines owned by nonjurisdictional
    entities are prominent in the West and South, including lines owned by
    federal

    Chapter 5: Lessons Learned from Electricity Restructuring and
    Recommendations

    Page 47 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    entities such as the Bonneville Power Administration, the Western Area
    Power Administration, and the Tennessee Valley Authority. Many of the
    lines owned by these nonjurisdictional entities are high- voltage
    transmission lines, capable of carrying large volumes of electricity over
    long distances. These types of lines may offer opportunities to facilitate
    transactions between regions.

    Figure 9: Ownership of Large Transmission Lines by Entities Subject to
    FERC Jurisdiction, 2002

    Source: GAO analysis of PowerMap data provided by Platt*s/ RDI. Notes:
    Data for transmission lines reflect primary ownership* some lines may have
    multiple owners. Federal entities include the Bonneville Power
    Administration, the Tennessee Valley Authority, the Western Area Power
    Administration and others.

    Chapter 5: Lessons Learned from Electricity Restructuring and
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    High voltage transmission lines are generally capable of moving higher
    volumes of electricity over greater distances with fewer losses, than
    lower voltage lines.

    As a result of the lack of jurisdiction across wide regions of the country
    and over significant transmission lines connecting some areas of the
    country, FERC has not been able to prescribe the same standards of open
    access to the transmission system. This situation, by limiting the degree
    to which market participants can make electricity transactions across
    these jurisdictions, will limit the ability of restructuring efforts to
    achieve a truly national competitive electricity system and, ultimately,
    will reduce the potential benefits expected from restructuring.

    FERC*s proposed standard market design rulemaking does not address the
    issue of its jurisdiction and authority regarding federally owned
    entities, cooperatives, and municipalities. Nonetheless, there have been
    several legislative proposals in the 107th Congress to address FERC*s
    limited jurisdiction, though none has been enacted.

    Federal and state governments each have regulatory authority for
    overseeing the electricity industry* federal over wholesale and state over
    retail markets. As a result, the actions taken to restructure wholesale
    and retail markets have, for the most part, been undertaken separately.
    For example, to promote competition in wholesale markets, FERC has taken
    actions to allow prices to be established by direct interaction between
    buyers and sellers. However, most state actions at the retail level have
    in fact served to freeze retail prices, thereby limiting the degree to
    which buyers can respond to changes in underlying wholesale prices.
    Specifically, states have imposed frozen retail prices in restructured
    markets or continued to regulate prices in areas not undertaking retail
    restructuring, both of which limit the ability of consumers to respond to
    changes in wholesale prices. There is general agreement among industry
    experts that the absence of a significant demand response has a negative
    impact on the functioning of wholesale electricity markets, causing prices
    to be higher and more volatile and facilitating the exercise of market
    power by electricity sellers. As a result, these state actions place
    limits on the extent to which competitive markets can develop and, thus,
    reduce the potential benefits expected from restructuring.

    Because FERC does not generally have authority over retail electricity
    markets, FERC*s standard market design proposed rulemaking does not
    directly address the issue of making electricity consumers responsive to
    prices. However, the proposed rulemaking does reference and comment
    Separate development of

    wholesale and retail electricity markets limits the ability to achieve
    benefits from competition

    Chapter 5: Lessons Learned from Electricity Restructuring and
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    on the value and need for a better link between supply (wholesale) and
    demand (retail) to help create improved supply planning and a more
    efficient competitive environment. Further, according to FERC, the
    proposed rulemaking would require market operators to receive demand
    reduction bids if states allow retail customers to make such bids.

    Federal, state and local entities all have authority over key decisions
    that affect new investment in generation and transmission facilities.
    Decisions made by private investors on how and when to site new generation
    facilities will influence the availability of new electricity supplies.
    Further, although transmission increasingly serves regional needs, state
    and local governments make many of the decisions on whether and where to
    site new lines. Therefore, the investments necessary to maintain adequate
    supplies of electricity and a reliable electricity system are critically
    dependent on how federal, state, and local regulatory bodies exercise
    their authority over these new investments. For example, adding a
    transmission line that crosses several state boundaries and passes through
    federal lands requires multiple permits and approval processes involving
    numerous regulatory entities charged with, among other things,
    environmental protection and land use planning issues. Similarly,
    investments in new generating facilities, while typically involving a
    single state, generally require approval from multiple regulatory entities
    to address state and local environmental, zoning, and energy policy
    issues.

    While recognizing the importance of the regulatory approval process, many
    market participants have stated that the lack of a unified and consistent
    regulatory environment across states creates a potential barrier to
    investment that leads to uneven and, in some cases, insufficient
    investment in new generating or transmission facilities. For example, as
    we have previously reported, states* power plant siting decisions affect
    companies* perceived risk of entering a given market, which may, in turn,
    result in more or less investment. 1 As restructuring creates markets that
    are more regional in scope, less than needed investment in new plants in
    one state may have implications for neighboring states* resulting in the
    need for additional plants to be built in adjacent states or contributing
    to higher market prices. As a result, state actions that serve to delay or

    1 U. S. General Accounting Office, Restructured Electricity Markets: Three
    States* Experiences in Adding Generating Capacity, GAO- 02- 427
    (Washington, D. C.: May 24, 2002). Federal, state, and local

    decisions on siting new power plants and transmission lines limit the
    ability to achieve benefits from competition

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    Page 50 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    prevent additions of new power plants or power lines could limit FERC*s
    ability to achieve a national market for competitive electricity and,
    thus, limit the expected benefits of restructuring.

    FERC*s standard market design proposal does not directly address the
    siting processes for electricity power plants or for transmission lines.
    However, the standard market design proposal does encourage regional
    cooperation and state and federal collaboration on generation and
    transmission system planning.

    FERC, the states, and other market monitors are not fully monitoring the
    overall performance of all wholesale and retail markets nor collecting
    sufficient data to do so. As a result, cross- regional comparison of the
    performance of markets is generally not possible. FERC has recently
    proposed changes to the design of electricity markets, which include plans
    to improve monitoring efforts.

    Until recently, FERC has not actively monitored market performance in a
    general sense. As reported earlier this year, FERC*s previous efforts to
    directly oversee the market have been incomplete or ineffective. 2
    Specifically, FERC staff told us that in the past their monitoring efforts
    were largely undertaken on a case- by- case basis in response to specific
    problems. For example, FERC has been actively investigating several
    complaints of market manipulation and violations of market rules over the
    past year, many stemming from the western U. S. electricity crisis that
    began in 2000. Further, FERC has limited authority to compel market
    participants to provide proprietary data needed for more comprehensive
    monitoring. For example, FERC has identified difficulties in getting data
    on individual power plant operations that it needs in order to evaluate
    the functioning of the transmission system. Senior FERC officials told us
    that, in general, FERC*s authority to collect data from market
    participants is predicated on developing a specific legal argument that
    the data support a specific investigation, rather than for more general
    monitoring of market performance. In some cases, according to FERC, this
    is due to the requirements of the Paperwork Reduction Act.

    2 U. S. General Accounting Office, Energy Markets: Concerted Actions
    Needed for FERC to Confront Challenges that Impede Effective Oversight,
    GAO- 02- 656 (Washington, D. C.: June 14, 2002). Better monitoring of

    market performance is needed to determine how well restructured markets
    are performing and the extent to which expected benefits of competition
    have occurred

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    Recommendations

    Page 51 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    State efforts to monitor the electricity industry have declined since the
    mid- 1990s. According to experts, the ability of state public utility
    commissions to monitor restructured electricity markets is limited because
    oversight has shifted from the states to FERC. They further stated that
    state commission access to data from market participants is more limited
    under restructuring than under the previous regulated environment in which
    they had authority over setting electricity rates for the utilities in
    their states and, therefore, access to most of the relevant industry data.
    In addition, a survey of public utility commissions, currently in process
    by the National Regulatory Research Institute, indicates that only 23 of
    the 40 states that responded had a formal standard on electricity
    reliability and service quality.

    As required by FERC, all ISOs or RTOs currently operating wholesale
    electricity markets have market- monitoring units that evaluate the
    conduct of their participants and some measures of market performance.
    However, the primary focus of the monitors has been to identify and
    mitigate the exercise of market power by electricity sellers, rather than
    measuring how well their overall design is working or whether these
    markets are delivering benefits to consumers. Market monitors we spoke
    with said that their efforts to evaluate market power have generally
    focused on comparing estimates of the costs of producing electricity to
    the prices received from the market. In most specific cases of day- to-
    day monitoring, monitors share their results in nonpublic reports with the
    management of the ISO and sometimes with FERC. In addition, the market
    monitors develop periodic reports, which evaluate the performance of their
    markets and are often made public. However, the authority and scope of
    each of these market monitors to collect data from market participants is
    limited by the boundaries of their individual markets. As a result,
    investigations undertaken by these entities are inherently limited because
    some key information may not be reviewed if it involves transactions with
    entities located outside the monitors* jurisdiction or involves
    transactions about which the monitor has no detailed information. In
    addition, because several of the market monitors rely on different methods
    to evaluate market power, there is a lack of uniformity in what data are
    collected, how they are analyzed, and what is reported, making cross-
    market comparisons difficult.

    Recently, with the formation of FERC*s new Office of Market Oversight and
    Investigations, FERC has begun to look more broadly at the performance of
    electricity markets and is in the process of studying what measures of
    market performance to evaluate on a regular basis. As part of this effort,
    the Office of Market Oversight and Investigations has begun to

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    produce weekly reports on market conditions for the commissioners and
    staff, although at this point the reports offer only limited coverage. In
    addition, FERC*s efforts to implement its proposed standard market design
    may improve market monitoring by standardizing the markets and improving
    the ability to make cross- market comparisons. As part of its proposed
    standard market design, FERC intends for each region to set up market
    monitoring units that would report to FERC regularly. FERC would also
    require that some of the data collected by the regional market monitors
    follow comparable protocols to facilitate cross- market comparisons. Using
    these reports and data received from the market monitors and other
    sources, FERC intends to regularly monitor electricity markets and take
    corrective actions in the event that problems emerge in wholesale
    electricity markets.

    While FERC*s recent efforts may improve the situation, key issues remain
    unresolved, and, unless addressed, will prevent full and consistent
    monitoring of restructured markets from going forward. Among the issues
    identified by recent participants in a FERC sponsored conference on market
    monitoring are (1) the lack of consistency in what data are collected and
    what evaluations are made, which makes cross- market comparisons
    difficult; (2) the unavailability of data needed by the public and
    researchers to evaluate restructuring; (3) the unavailability of key data
    to market monitors, such as information about bilateral trades between
    buyers and sellers outside the ISO- run markets; and (4) concern and
    reluctance on the part of market participants that the proprietary data
    they provide to market monitors may be revealed in such a way that it
    impedes their ability to compete effectively. As a result, no entity can
    currently conduct a comprehensive evaluation of restructuring across
    different states and electricity markets to determine how restructuring is
    doing with respect to overall performance and the delivery of consumer
    benefits.

    Because the transition to greater competition will take considerable time,
    it is possible that bad outcomes for consumers, such as rising retail
    prices in the aftermath of the electricity crisis in the western United
    States from summer 2000 to spring 2001, could occur again. It is
    essential, therefore, that FERC and other regulatory bodies or independent
    monitors carefully watch for signs of problems and be able to make needed
    adjustments in a timely fashion. Further, better monitoring of electricity
    markets would also help to ensure that the goal of increasing competition
    in electricity markets and the expected benefits associated with this
    greater competition are achieved. Without a concerted effort to improve
    monitoring of wholesale markets and their impact on consumers, FERC
    Conclusion

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    will lack key information needed to make informed regulatory decisions and
    to report to Congress about the status and progress of restructuring.

    To help Congress ensure that the fullest benefits possible are achieved
    from electricity restructuring, and to better understand what progress has
    been made, GAO is recommending that the Chairman, FERC,

    1. determine how restructured wholesale electricity markets are performing
    by developing and implementing a plan to collect necessary data and
    perform evaluative analysis. These data should be sufficient to allow
    evaluation of the competitiveness of these markets (including, but not
    limited to, the extent of market power, efficiency of the industry, and
    ease of market entry) and the expected benefits to retail consumers (such
    as lower retail prices and the availability of new products). Where
    possible and appropriate, FERC should work in concert with state and
    regional entities to take advantage of their knowledge, expertise, and
    access to important data relevant to the impacts of restructuring on
    consumers.

    2. report annually to Congress and the states on the status of
    restructuring efforts, identify emerging issues and impediments to
    reaching FERC*s goal of achieving national competitive wholesale
    electricity markets, and make appropriate recommendations to Congress and
    the states for changes to improve the functioning of these markets.

    In its written comments, FERC agreed with our report*s *lessons learned*
    and principal findings. In addition, FERC agreed with our second
    recommendation that FERC should report annually to Congress on the status
    of restructuring, noting that it plans to do so in spring 2003. However,
    FERC said that our recommendation directing it to determine, in concert
    with the states and regional entities, how both wholesale and retail
    markets are performing is more problematic. While FERC agreed that it
    should evaluate and report on wholesale markets under its jurisdiction, it
    stated two reasons for its concern about evaluating retail markets in
    concert with state entities. First, because retail markets are under state
    jurisdiction, while FERC oversees wholesale markets, FERC is sensitive to
    this division of jurisdiction and is hesitant to monitor the status and
    effectiveness of retail competition unless Congress specifically directs
    it to do so. Secondly, FERC states that it does not currently have the
    expertise or resources to evaluate the multiplicity of retail markets.
    Recommendations for

    Executive Action Agency Comments

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    Page 54 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    We are sensitive to the separation of jurisdiction over retail and
    wholesale electricity markets. For this reason, we are not recommending
    that FERC step outside its jurisdictional boundaries or attempt to assume
    responsibility for the status and effectiveness of retail restructuring
    efforts. However, we believe that in order for FERC to fully evaluate and
    understand the effectiveness of its actions to implement competition in
    wholesale markets, it must examine the status of restructuring in
    wholesale markets as well as the impact of this restructuring on consumers
    of electricity. FERC*s Order 888, issued April 24, 1996, points out that
    FERC*s actions are ** designed to remove impediments to competition in the
    wholesale bulk power marketplace and to bring more efficient, lower cost
    power to the nation*s electricity consumers.* Because lower electricity
    prices to consumers are an expected benefit from more competitive
    wholesale markets, we believe it is reasonable that FERC, Congress, and
    the states should know if lower prices are occurring as the basis for
    possible future policy actions.

    With regard to the issue of resources and expertise, we believe that FERC
    can supplement its own assets by drawing from many sources to assist it in
    evaluating retail impacts. Among these sources are (1) other federal
    agencies* including the Energy Information Administration* and private
    companies that collect data on consumer electricity prices and other
    related information; (2) market monitoring units of regional or state
    independent system operators or other entities that operate wholesale
    electricity markets; (3) expert panels, such as the panels recently
    brought together to assist FERC with its market monitoring plans in FERC*s
    proposed standard market design; and (4) state agencies that have
    historically tracked consumer issues as part of their oversight over
    retail electricity markets* as we previously reported, there is precedent
    for FERC obtaining input on its studies from state public utility
    commissions. 3 We also believe that FERC is in a unique position to be
    able to make a nationwide assessment of restructuring because, as the
    primary federal agency responsible for overseeing wholesale electricity
    markets, it is the only entity that currently has access to key
    information from all its jurisdictional markets and market participants.
    In addition, in the process of formulating its proposed standard market
    design, FERC has consulted with state and regional entities, in part to
    formulate plans to monitor the

    3 U. S. General Accounting Office, Energy Markets: Concerted Actions
    Needed for FERC to Confront Challenges that Impede Effective Oversight,
    GAO- 02- 656 (Washington, D. C.: June 14, 2002). See page 43 for reference
    to obtaining input from state public utility commissions for FERC studies.

    Chapter 5: Lessons Learned from Electricity Restructuring and
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    Page 55 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    performance of markets under the standard design. We believe that such
    coordination between FERC, the states, and regional entities is necessary
    and should extend to evaluating the impacts of wholesale restructuring on
    consumers.

    In order to make it clear that we are not asking FERC to overstep its
    jurisdictional boundaries, we have revised the language of our
    recommendation to state that we recommend FERC evaluate the impacts of
    restructuring efforts in the wholesale markets on retail electricity
    consumers. However, because of the importance of state and regional
    involvement in restructuring of the electricity industry more generally,
    we continue to encourage FERC, where possible and appropriate, to work in
    concert with state and regional entities to develop this analysis.

    In a related comment, FERC also noted that while the report distinguishes
    between wholesale and retail markets, it does not recognize or clearly
    articulate the significant differences between the two markets and the
    impacts of and motivations for competition at each level.

    We agree that there are significant differences between retail and
    wholesale markets, but we believe the report appropriately reflects these
    differences and therefore we made no change in response to this comment.
    More importantly, retail and wholesale markets are closely linked through
    the actions of buyers and sellers; for this reason, an evaluation of one
    of these markets without considering its effect on the other market is
    incomplete and could be misleading. For example, federal actions to
    restructure wholesale electricity markets are expected to ultimately
    reduce electricity prices for retail consumers through improvements in
    efficiency brought on by restructuring. It is equally true that actions at
    the retail level have an impact on the functioning of competitive
    wholesale markets. For example, as we previously reported, there is wide
    agreement among industry experts and academics that the absence of
    consumer response to sharply higher prices in western wholesale
    electricity markets was a contributing factor to the financial and

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    Page 56 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    energy crisis in the West during 2000 and 2001. 4 These examples
    illustrate the need for FERC to make a periodic nationwide assessment of
    restructuring that includes an evaluation of the impacts of wholesale
    restructuring on expected retail consumer benefits.

    4 U. S. General Accounting Office, Restructured Electricity Markets:
    California Market Design Enabled Exercise of Market Power, GAO- 02- 828
    (Washington, D. C.: June 21, 2002).

    Appendix I: Scope and Methodology Page 57 GAO- 03- 271 Lessons Learned
    from Electricity Restructuring

    To address the objectives overall, we interviewed and obtained
    documentation from a wide range of stakeholders to the issue including
    federal and state government officials, industry officials, academic
    experts, and various other special interest groups and organizations. We
    interviewed officials at FERC, the Department of Energy*s Energy
    Information Agency, the Congressional Research Service, the Maryland
    Energy Administration, the California Energy Commission, the Western
    Interstate Energy Board, and the National Association of Regulatory
    Utility Commissioners. Of particular note, we interviewed representatives
    from the existing ISOs in the United States to understand the structure
    and performance of their markets. These ISOs include California ISO, ISO
    New England, Midwest ISO, New York ISO, PJM ISO, and the Electric
    Reliability Council of Texas. We also talked with representatives of
    organizations that are in the process of creating ISOs to run their
    wholesale electricity markets, including Regional Transmission Operator
    West and the Southeastern Transmission System. We also interviewed noted
    economists. In addition, we talked to the Edison Electric Institute, the
    Electric Power Supply Association, the National Energy Marketers
    Association, the Electricity Consumers Resource Council, and the Consumer
    Energy Council of America, and Public Citizen. We also spoke with
    representatives from a number of research organizations, including EPRI,
    the National Regulatory Research Institute, the Tellus Institute,
    Resources for the Future, and the Regulatory Assistance Project.

    In addition to gathering the views of experts and stakeholders, we
    reviewed numerous appropriate documents from outside sources, including
    academic books and articles on restructuring and reports from the Energy
    Information Administration, the North American Electric Reliability
    Council, the Congressional Research Service, the Congressional Budget
    Office, various ISOs, and electricity industry experts. Furthermore, we
    reviewed prior GAO work on the electricity industry.

    To better understand the basis for and nature of electricity restructuring
    in the world community, specifically, we interviewed selected
    representatives and reviewed readily available reports and information on
    the restructuring experiences of several foreign countries, including the
    Great Britain, Norway, Sweden, Australia, and New Zealand.

    To develop an understanding of the goals and guiding principles of
    restructuring, we conducted legislative and regulatory searches as well as
    an extensive literature search, supplemented by interviews with government
    and industry officials, experts, ISO officials, and other stakeholders. We
    reviewed information on federal legislation, FERC Appendix I: Scope and
    Methodology

    Appendix I: Scope and Methodology Page 58 GAO- 03- 271 Lessons Learned
    from Electricity Restructuring

    orders, FERC proceedings and other documents related to restructuring, and
    court orders related to FERC regulations. This included reviews of FERC*s
    notice of proposed rulemaking on standard market design, staff research
    papers, congressional testimony by FERC Chairman Pat Wood, and speeches by
    other FERC officials.

    To identify actions that federal and state agencies have taken to
    restructure the electricity industry, we reviewed documents related to
    federal and state restructuring laws and regulations. We also interviewed
    numerous officials from federal and state regulatory agencies and the
    staff of all the ISOs.

    To determine to what extent federal and state actions achieved the goals
    of restructuring, we reviewed numerous studies of restructuring; collected
    views of experts and market participants and interviewed officials from
    FERC, state regulatory agencies, and trade groups, as well as the staff of
    the ISOs. In addition, we collected publicly available data, including
    wholesale and retail electricity prices, generating capacity, electricity
    consumption, investment in new generating plants, and information about
    the transmission system. We evaluated this data to try to determine
    whether statistical methods could be used to estimate the extent to which
    restructuring has achieved expected consumer benefits. However, we found
    that the publicly available data were generally insufficient to allow such
    statistical methods to be used in light of the transitional nature of
    restructuring. For example, we were unable to collect comprehensive data
    on the operations of electricity generating plants, and these data are
    necessary to determine how the efficiency of operations may vary according
    to the restructuring status of the states in which these generating plants
    are situated. Because we had to rely, instead, on more aggregated and less
    comprehensive data, we were unable to determine whether generating plants
    in restructured markets operate more efficiently than do plants in regions
    that are still regulated traditionally.

    We conducted our work from November 2001 through November 2002 in
    accordance with generally accepted government auditing standards.

    Appendix II: Related GAO Reports Page 59 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    Restructured Electricity Markets: California Market Design Enabled
    Exercise of Market Power. GAO- 02- 828. Washington, D. C.: June 21, 2002.

    Energy Markets: Concerted Actions Needed by FERC to Confront Challenges
    That Impede Effective Oversight. GAO- 02- 656. Washington, D. C.: June 14,
    2002.

    Air Pollution: Emissions from Older Electricity Generating Units. GAO02-
    709. Washington, D. C.: June 12, 2002.

    Tennessee Valley Authority: Information on Benchmarking and Electricity
    Rates. GAO- 02- 636. Washington, D. C.: May 30, 2002.

    Restructured Electricity Markets: Three States* Experiences in Adding
    Generating Capacity. GAO- 02- 427. Washington, D. C.: May 24, 2002.

    Air Quality: TVA Plans to Reduce Air Emissions Further, but Could Do More
    to Reduce Power Demand. GAO- 02- 301. Washington, D. C.: March 8, 2002

    Energy Markets: Results of Studies Assessing High Electricity Prices in
    California. GAO- 01- 857. Washington, D. C.: June 29, 2001.

    California Electricity Market: Outlook for Summer 2001. GAO- 01- 870R.
    Washington, D. C.: June 29, 2001.

    California Electricity Market Options for 2001: Military Generation and
    Private Backup Possibilities. GAO- 01- 865R. Washington, D. C.: June 29,
    2001.

    Federal Power: The Evolution of Preference in Marketing Federal Power.

    GAO- 01- 373. Washington, D. C.: February 8, 2001.

    Power Marketing Administrations: Their Ratesetting Practices Compared With
    Those of Nonfederal Utilities. GAO/ AIMD- 00- 114. Washington, D. C.:
    March 30, 2000.

    Federal Power: The Role of the Power Marketing Administrations in a
    Restructured Electricity Industry. GAO/ T- RCED/ AIMD- 99- 229.
    Washington, D. C.: June 24, 1999.

    Federal Power: Regional Effects of Changes in PMAs* Rates. GAO/ RCED99-
    15. Washington, D. C.: November 16, 1998. Appendix II: Related GAO Reports

    Appendix II: Related GAO Reports Page 60 GAO- 03- 271 Lessons Learned from
    Electricity Restructuring

    Federal Power: Options for Selected Power Marketing Administrations* Role
    in a Changing Electricity Industry. GAO/ RCED- 98- 43. Washington, D. C.:
    March 6, 1998.

    Federal Power: Issues Related to the Divestiture of Federal Hydropower
    Resources. GAO/ RCED- 97- 48. Washington, D. C.: March 31, 1997.

    Power Marketing Administrations: Cost Recovery, Financing, and Comparison
    to Nonfederal Utilities. GAO- AIMD- 96- 145. Washington, D. C.: September
    19, 1996.

    Appendix III: Comments from the Federal Energy Regulatory Commission

    Page 61 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Appendix III: Comments from the Federal Energy Regulatory Commission

    Appendix III: Comments from the Federal Energy Regulatory Commission

    Page 62 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Appendix III: Comments from the Federal Energy Regulatory Commission

    Page 63 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Appendix IV: Bibliography of Selected Restructuring Studies

    Page 64 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Alexander, Barbara R. *Part One: An Analysis of Residential Energy Markets
    in Georgia, Massachusetts, Ohio, New York and Texas.* National Center for
    Appropriate Technology, August 2002.

    Borenstein, Severin, and James Bushnell. *Electricity Restructuring:
    Deregulation or Reregulation?* (unpublished). February 2000.

    Borenstein, Severin. *The Trouble with Electricity Markets (and some
    solutions)* (unpublished). January, 2001.

    Brennan, Timothy J. *The California Electricity Experience 2000- 01:
    Education or Diversion?* Resources for the Future, October 2001.

    Brown, Matthew H. *Part Two: An Analysis of Opt- Out Aggregation in
    Massachusetts and Ohio.* National Center for Appropriate Technology,
    August 2002.

    California Independent System Operator. *Background Paper: Comparison of
    Capacity Obligations and Markets.* Draft prepared by Power Economics,
    Inc., March 15, 2002.

    Citizens for Pennsylvania*s Future. *Electricity Competition: The Story
    Behind the Headlines A 50- state Report.* Harrisburg, PA: August 2002.

    Congressional Budget Office. *Causes and Lessons of the California
    Electricity Crisis.* Washington D. C.: September 2001.

    Cooper, Mark N. *All Pain, No Gain: Restructuring and Deregulation in the
    Interstate Electricity Market.* Consumer Federation of America,
    Washington, D. C.: September 2002.

    Cooper, Mark N. *U. S. Capitalism and the Public Interest: Restoring the
    Balance in Electricity and Telecommunications.* Consumer Federation of
    America. Washington, D. C.: August 2002.

    Deregulation of Network Industries: What*s Next. Peltzman, Sam and
    Clifford Winston, editors. AEI- Brookings Joint Center For Regulatory
    Studies. 2000.

    Electricity Advisory Board. *Competitive Wholesale Electricity Generation:
    A Report of the Benefits, Regulatory Uncertainty, and Remedies to
    Encourage Full Realization Across All Markets.* Electric Resources,
    Capitalization Concerns Subcommittee. September 2002. Appendix IV:
    Bibliography of Selected

    Restructuring Studies

    Appendix IV: Bibliography of Selected Restructuring Studies

    Page 65 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Electricity Advisory Board. *Transmission Grid Solutions Report,*
    Subcommittee on Transmission Grid Solutions. September 2002.

    Electricity Consumers Resource Council. *Preventing Market Failures on the
    Road to Competition: Analysis and Recommendations of Electricity Consumers
    Resource Council, a Special Report.* Washington, D. C.: May 2001.

    Federal Trade Commission. *Competition and Consumer Protection
    Perspectives on Electric Power Regulatory Reform: Focus on Retail
    Competition.* Washington, D. C.: September 2001.

    Harvard Electricity Policy Group. *Reshaping the Electricity Industry: A
    Public Policy Debate.* Harvard University, June 2001.

    Heffner, Grayson C., and Charles A. Goldman. *Demand Responsive Programs*
    An Emerging Resource for Competitive Markets?* Environmental Energy
    Technologies Division of Lawrence Berkeley National Laboratory, August
    2001.

    Hirst, Eric. *Barriers to Price- Responsive Demand in Wholesale
    Electricity Markets.* Prepared for Edison Electric Institute, June 2002.

    Hirst, Eric. *The California Electricity Crisis Lessons for Other States*
    (unpublished). July 10, 2001.

    Hirst, Eric. *The Financial and Physical Insurance Benefits of
    PriceResponsive Demand.* February 2002.

    Hogan, William W. *Electricity Market Restructuring: Reforms of Reforms.*
    Paper presented at annual conference of Center for Research in Regulated
    Industries, Rutgers University: May 23- 25, 2001.

    Hogan, William W. *Regional Transmission Organizations: Millennium Order
    on Designing Market Institutions for Electric Network Systems*
    (unpublished). May 2000.

    Hunt, Sally. Making Competition Work in Electricity. New York: John Wiley
    & Sons, 2002.

    Joskow, Paul L. *Lessons Learned from Electricity Liberalization in the UK
    and U. S.* Presentation at Conference Towards a European Market of

    Appendix IV: Bibliography of Selected Restructuring Studies

    Page 66 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Electricity at the SSPA- Italian Advanced School of Public Administration,
    Rome, Italy. June 24, 2002.

    King, Chris S. *The Economics of Real- Time and Time- of- Use Pricing for
    Residential Customers.* American Energy Institute, June 2001.

    Lee, Stephen T. *Lessons Learned from the California Power Crisis.* EPRI,
    Palo Alto, CA. November 1, 2001.

    Mattoon, Richard. *The Electricity System at the Crossroads- Policy
    Choices and Pitfalls.* Economic Perspective, 1Q/ 2002.

    Moore, Adrian T. and Lynne Kiesling. *Powering Up California: Policy
    Alternatives for the California Energy Crisis.* Policy Study No. 280,
    Reason Public Policy Institute, Los Angeles, CA: February 2001.

    Morey, Matthew J. *Ensuring Sufficient Generating Capacity, During the
    Transition to Competitive Electricity Markets.* Prepared for Edison
    Electric Institute, Washington, D. C.: November 2001.

    Moss, Diana. *Promoting Competition in the U. S. Electricity Industry:
    Policy Issues and Recommendations.* The American Antitrust Institute,
    Washington, D. C.: December 18, 2001.

    Pricing in Competitive Electricity Markets. Faruqui, Ahmad and Kelly
    Eakin, editors. Kluwer Academic Publishers. 2000.

    Rose, Kenneth and Venkata Bujimalla. *2002 Performance Review of Electric
    Power Markets.* National Regulatory Research Institute, Columbus, OH.:
    August 30, 2002.

    Rowe, John W., Peter Thornton, and Janet Bieniak Szcypinski. *Competition
    Without Chaos.* Joint Center for Regulatory Studies, Working Paper 01- 07,
    June 2001.

    State Corporation Commission (of Virginia). *Part III- Recommendations to
    Facilitate Effective Competition in the Commonwealth.* August 2002.

    Stoft, Steven. Power System Economics: Designing Markets for Electricity.
    IEEE/ Wiley, 2002.

    Sweeney, James, L. *The California Electricity Crisis: Lessons for the
    Future.* The Bridge, Volume 32, Number 2. Summer 2002.

    Appendix IV: Bibliography of Selected Restructuring Studies

    Page 67 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Weston, Frederick, and Jim Lazar. *Framing Paper #3: Metering and Retail
    Pricing.* Produced for New England Demand Response Initiative by The
    Regulatory Assistance Project, May 1, 2002.

    Wolak, Frank A. *Designing a Competitive Electricity Market that Benefits
    Consumers* (unpublished). October 15, 2001.

    Wolfram, Catherine D. *Electricity Markets: Should the Rest of the World
    Adopt the UK Reforms?* (unpublished) September 1999.

    Appendix V: GAO Contacts and Staff Acknowledgments

    Page 68 GAO- 03- 271 Lessons Learned from Electricity Restructuring

    Jim Wells (202) 512- 3841 Dan Haas (202) 512- 9828

    In addition to the individuals named above, Mike Gilbert, Jason Holliday,
    Rich Iager, Randy Jones, Jon Ludwigson, Jonathan McMurray, Frank Rusco,
    and Barbara Timmerman made key contributions to this report. Important
    contributions were also made by Kim Wheeler- Raheb, and Venkareddy
    Chennareddy. Appendix V: GAO Contacts and Staff

    Acknowledgments GAO Contacts Acknowledgments

    (360151)

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