The competitive impacts of electricity deregulation

The process of electricity deregulation will have market-based impacts on electric utility companies. As electricity becomes commoditized, electric utilities will need a new corporate culture and skill set to manage the transition to free markets. The former culture of building power stations and transmitting electricity will change to those commercial and financial skills of competitive markets. Organizations will have to not only restructure, but be able to respond to changes in the marketplace on using the financial tools of the risk management culture. Power marketers have already emerged in this new marketplace and are accelerating the process of deregulation and breaking down existing barriers to retail competition. They offer both physical access to power and hedging capabilities for paper electrons. Electricity futures trading to begin on March 29, 1996 will further catalyze the change process while federal and state level regulatory initiatives will continue to lag market development. While the futures contracts are in the early stages of market deregulation, the transition to competition will move much more quickly than the deregulation and commoditization of the U.S. natural gas markets which took fifteen years to achieve. Electricity is well suited for futures trading as it isa real time commodity, which can't be stored inexpensively. The electricity futures and Over-the-Counter markets will enable utilities and end-users to enjoy lower rates and offer new financial products. It will also lead to new ways to buy and sell power on both the physical and financial side, But the transition to competition and commodity markets will force mergers, acquisitions, and restructuring while bringing about the creation a new competitive utility industry.