Policy Studies Energy and Environment

Electricity competition excels in the Midwest

Beginning in the 1990s, 13 states and the District of Columbia restructured their electricity systems. This has facilitated competitive wholesale markets and enabled retail customers to choose their electricity supplier, while limiting monopoly ownership and regulation of transmission and distribution lines. Illinois and Ohio were the only Midwest states to follow through on restructuring, while Michigan allows just 10 percent of customers statewide to choose their electricity supplier and remains predominantly a regulated-monopoly state.

Although policymakers and regulators initiated restructuring in the 1990s, mature wholesale and retail markets did not take shape until the late 2000s. The period between served as the transitional decade, marked by retail price controls, developing wholesale market design and mandatory rate-adders, which were designed to allow former monopoly utilities to recover the cost of “stranded” generation assets. For example, from 2000 to 2010, Ohio utilities received more than $9 billion in “stranded asset” and “regulatory transition” payments. As such, a robust retail market for electricity did not emerge in Ohio until 2011. Thus, restructuring did not result in proper competitive market structures and functions until roughly the turn of this decade. Since then, competitive markets have unquestionably outperformed the monopoly model both nationally and in the Midwest.

Image by Kent Weakley


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