Power Biz 101

Price Caps Set During Industry Restructuring Are Expiring.
As discussed in Section Three, a major shift in the electric utility landscape began in the mid-1990s, as a number of states, especially those in the Northeast, Mid-Atlantic region, and the Midwest, along with California, moved to restructure portions of the retail electricity industry. Aiming to lower costs by stimulating competitive markets for the generation portion of customers’ bills, these states moved away from the traditional model in which state regulators set the retail prices for power.

Today, 19 states and the District of Columbia have adopted programs for retail electric competition. One prominent hallmark of nearly every state that adopted such markets was this—as part of the gradual transition to competition, state policymakers decreed that customers’ bills would be frozen, and in many cases reduced, typically for a period ranging from two to 10 years. The first rate caps were put in place in 1997, and the last are set to expire in 2011.

Beginning in 2004, many of those rate freezes and reductions began to be phased out. The result is that many customers now perceive that their rates are being "increased," when in fact they are gradually reflecting the costs already incurred by companies during the years the rates were frozen.