Reg and Dereg
State Regulation Of Electric Utilities Varies By State.
Traditionally, state governments regulated shareholder-owned utility transactions at the retail level, where the company is selling electricity directly to the end-user such as a home or business. The sale of electricity at the retail level was under the jurisdiction of state agencies known as Public Utility Commissions or Public Service Commissions. In most cases, the states also regulated the construction and siting of power plants and transmission lines.
As electricity choice evolved, state regulation changed on a state-by-state basis. Today, in all states, utility transmission and distribution functions remain highly regulated. How electric generation—and electricity rates—are regulated, however, varies by state. In the 32 states that have not adopted electricity choice, electricity rates are still determined by state regulators who examine a company’s entire cost of generating and delivering electricity to customers, and then set an electricity rate that will reimburse the company for those costs plus a fixed rate of return or profit. The regulators’ goal is to keep customers’ rates as low as possible, while also allowing companies to remain financially healthy and meet their obligations. This is called "cost-of-service" ratemaking and was the traditional model governing electric rates for many decades.
In the 18 states and the District of Columbia where electricity competition is in place, the electric power generation portion of customers’ rates is frequently subject to competitive bidding, or auctions, in which electricity producers compete for contracts to serve the retail customers of electric companies. (Again, in these states, the transmission and distribution portions of customers’ bills are still governed entirely by state regulators.) The exact competitive model varies by state, but the goal is to lower rates by fostering competition among suppliers. State regulators still must oversee this process, but the actual wholesale price for electricity is set in the competitive market.