Non-utility generation capacity in the US markets has increased substantially. Numerous electricity trading hubs and wholesale electricity markets that have developed across the country have grown from about 6% of total generation capacity in 1991 to almost 20% in 1999. Non-utility generators produce power mostly for wholesale markets and are in direct competition with traditional vertically integrated electric utilities in many regions.
The Public Utility Regulatory Policies Act of 1978, which was designed primarily to encourage the use of renewable energy for electricity production, demonstrated that generation of electricity is not a natural monopoly by fostering the growth in non-utility generators and independent power producers. The Energy Policy Act of 1992 further promoted growth in non-utility generators by exempting them from regulatory constraints of the Public Utility Holding Company Act of 1935.
With the introduction of competition, wholesale power trading has increased markedly. An example is the substantial increase of power marketers in the United States. Power marketers buy and sell electricity, but they do not own or operate transmission or distribution facilities. Currently, over 500 companies are classified as power marketers and have filed rate tariffs with the FERC to sell wholesale power in the United States. However, actual sales by power marketers are concentrated in approximately 50 companies or less.
With the growth in power marketing companies, the volume of power trades has increased significantly in recent years. For example, in the first quarter of 1995 power marketers traded 1,800 MW of electricity. By the first quarter of 1999, trade by power marketers had increased to over 400,000 GWh.
During the year 2000, regional wholesale power prices have varied considerably. Starting in June 2000, California experienced a precipitous increase in average monthly wholesale prices, reaching nearly $400 per MWh in December 2000. On the other hand, the average wholesale power prices in east coast markets were less than $45 per MWh for most of 2000. Industry leaders are concerned that appropriate market designs are developed to allow market participants to hedge against sudden and sharp increases in wholesale prices.