The encyclopedia · Strategy & Leadership · Strategic decision · 1996–2002
FERC's Order 888 separated the wire from the power, and a wholesale market appeared
In 1996, FERC required utilities to offer rivals equal transmission terms, boosting wholesale trading 45-fold in six years.
US Federal Energy Regulatory Commission (FERC) · US electric utilities
The solution
By the mid-1990s, wholesale electric competition was impossible because the companies that owned transmission lines also owned generation and had no incentive to wheel rivals' power to their customers. A competitor could only sell where its own wires reached.
On April 24, 1996, FERC issued Order 888, requiring open-access transmission on a comparable basis: utilities had to offer wholesale transmission under the same terms and conditions they used for their own generation, functionally separate generation, transmission and power control, price six ancillary services separately, and allow recovery of stranded costs. The rule also encouraged regional transmission organizations and set eleven principles they had to meet.
Per EIA-based figures cited by the energy industry, wholesale trading grew from about 100 million kilowatt-hours in 1996 to close to 4.5 billion by 2002 — a roughly 45-fold expansion in six years — and states that restructured their retail markets (California, New York, Pennsylvania) then opened the door to direct sales by competitive marketers.
Why it worked
- Comparable-access rules made a utility treat competitors' transactions exactly like its own, removing the built-in advantage.
- Posting availability in real time turned transmission information into a public commodity any trader could see.
- Ancillary services priced separately created the price signals a market needs.
- The 45-fold growth in wholesale trading showed the market formed as soon as the bottleneck opened.
What can be applied
When a monopoly bottleneck blocks competition behind it, unbundling the bottleneck service and forcing insiders to buy it on the same terms as outsiders is what gets the market started.
Aftermath
Order 888's conventions still structure US electricity: open-access tariffs, functional separation, ancillary services and the ISO model it encouraged became standard. California's 2000-01 crisis exposed that open access alone does not fix generation scarcity, and later orders tightened market design, but the wholesale market Order 888 made possible underpins the roughly $400 billion-a-year US electricity trading system — and its structure was copied in energy markets worldwide.
Sources
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