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Contrast the regulated and deregulated models of electricity generation (see page 39). U.S. Electric Markets, Structure, and Regulations INTRODUCTION Since the early 1990s, the U.S. electric utility industry has gone through sweeping changes associated with deregulation, regulations, reregulation, and the rate-making process. Due to the largely sunk capital investment and the well-established presence of economies of scale, economies of scope, and vertical integration, conventional wisdom has held that competition is infeasible (at least in the transmission and distribution segments). This same wisdom holds that price regulation is necessary to ensure that consumers pay a fair price and that producers and shareholders are compensated appropriately for the risk associated with holding the stock of the utility [in the case of investor-owned utilities (IOUs), which supply approximately two-thirds of the power to end-users in the United States]. This chapter discusses the electric market structure, how utilities recover their costs, the different recovery mechanisms, federal and state regulations, and how the regulatory process can impact rates. THE U.S. ELECTRIC INDUSTRY STRUCTURE In recent years, the industry has been evolving from vertically integrated monopolies that provide generation, transmission, and distribution service at cost-based rates (regulated model) to an industry where the operation of generation, transmission, and distribution assets has been increasingly unbundled and even divested [in the case of generating assets (deregulated model)]. In certain markets, the wholesale and retail price of electricity is determined competitively under a regulatory framework that promotes competition. Although transmission and distribution markets are still monopolistic and follow traditional cost-based rates, the Federal Energy Regulatory Commission (FERC) and a number of states have implemented rate-making approaches that give regulated utilities financial incentives to expand their transmission and distribution systems cost-effectively and reliably. Fourteen states - Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania

          Contrast the regulated and deregulated models of electricity generation (see page 39).
U.S. Electric Markets, Structure, and Regulations

INTRODUCTION
Since the early 1990s, the U.S. electric utility industry has gone through sweeping changes associated with deregulation, regulations, reregulation, and the rate-making process. Due to the largely sunk capital investment and the well-established presence of economies of scale, economies of scope, and vertical integration, conventional wisdom has held that competition is infeasible (at least in the transmission and distribution segments). This same wisdom holds that price regulation is necessary to ensure that consumers pay a fair price and that producers and shareholders are compensated appropriately for the risk associated with holding the stock of the utility [in the case of investor-owned utilities (IOUs), which supply approximately two-thirds of the power to end-users in the United States]. This chapter discusses the electric market structure, how utilities recover their costs, the different recovery mechanisms, federal and state regulations, and how the regulatory process can impact rates.

THE U.S. ELECTRIC INDUSTRY STRUCTURE
In recent years, the industry has been evolving from vertically integrated monopolies that provide generation, transmission, and distribution service at cost-based rates (regulated model) to an industry where the operation of generation, transmission, and distribution assets has been increasingly unbundled and even divested [in the case of generating assets (deregulated model)]. In certain markets, the wholesale and retail price of electricity is determined competitively under a regulatory framework that promotes competition. Although transmission and distribution markets are still monopolistic and follow traditional cost-based rates, the Federal Energy Regulatory Commission (FERC) and a number of states have implemented rate-making approaches that give regulated utilities financial incentives to expand their transmission and distribution systems cost-effectively and reliably. Fourteen states - Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania

11 contrast the regulated and deregulated models of electricity generation see page 39 us electric markets structure and regulations introduction since the early 1990s the us electric utilit 32646

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