Graduation Year

Spring 2011

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Lisa Meulbroek

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Rights Information

© 2011 Noah N. Levin

Abstract

1. Introduction Power industry deregulation and electricity market restructuring, which began in Chile in the 1980s and then spread to Norway, New Zealand and the UK, were introduced in the United States with the passage of the Energy Policy Act (EPA) of 1992 (Jameson, 1997). The EPA and subsequent Federal Energy Regulatory Commission (FERC) Orders led to the restructuring of vertically integrated electric utilities, the establishment of Independent System Operators (ISO) and Regional Transmission Organizations (RTO) and the development of competitive wholesale power markets. Deregulation also led to the creation of various electricity contract–based financial derivative products. In 1996, the New York Mercantile Exchange (NYMEX) created the US’s first electricity futures, the Palo Verde and California/Oregon Border contracts, which were traded for physical delivery (Warwick, 2002). While these products were eventually delisted in 2002, other exchange-traded and OTC contracts, for both physical and financial settlement, have been introduced on numerous exchanges, including the Intercontinental Exchange (ICE), Chicago Mercantile Exchange (CME) and markets operated by ISOs and RTOs. From the start, deregulation of the electricity industry has been a contentious and controversial subject, its economic, political and social ramifications hotly debated in the US and abroad. The debate continues, and as of September 2010, fifteen states and the District of Columbia have deregulated electricity markets, seven have suspended restructuring activities and twenty-eight have no deregulatory legislation or restructuring activities to speak of (FERC, 2010).

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