Frequently Asked Questions

Power Questions

 Who are EPSA’s member companies?

EPSA member companies are competitive power suppliers that own and operate more than 150,000 MW of power generation capacity across the United States and in parts of Canada—that’s enough to power more than 112 million homes. Our members develop, own, and invest in all resources and technologies including natural gas, coal, wind, solar, hydropower, geothermal, nuclear, biomass, and storage.

Today, EPSA members include BP, Calpine Corporation, Cogentrix, Competitive Power Ventures, Diamond Generating, Eastern Generation, Energy Capital Partners, Gen-On, J-Power, LS Power, NRG Energy, Rockland Capital, Shell, Tenaska, and Vistra.

 What are competitive power suppliers?

Competitive power suppliers are an essential part of our energy grid, providing low-cost and reliable electricity. They own, operate, and invest in power generation of all kinds (including natural gas, coal, nuclear, renewables, and storage), technologies, and facilities of all kinds.

Unlike utilities, competitive power suppliers invest in, build, and maintain projects at their own economic risk. They do not receive a guaranteed return on investment from ratepayers through utility bills, and they must compete in the market to offer safe, reliable power at the least cost.

A competitive system keeps power generators accountable and encourages more efficient operations. If a project is over-budget, late, or turns out to be unnecessary, consumers and taxpayers don’t get stuck with the bill. This leads to lower costs for consumers and encourages innovation and the adoption of newer, more efficient technology as it becomes available.

Competitive power suppliers have been leaders in investing in and building more efficient, cleaner technology while providing reliable power at the least possible cost. EPSA members are among the earliest investors in wind, solar, and electric vehicle technology, and have followed market signals to close, thousands of MWs of coal plants to transition to cleaner natural gas and renewables.

Competitive power suppliers are actively building the grid of the future while bringing you reliable, efficient power today.

 What is a competitive wholesale electricity market?

Organized wholesale electricity markets were created to address ever-increasing electricity prices and to encourage innovation through free enterprise competition.

In economic terms, electricity is a commodity that can be bought, sold, and traded. An electricity market is a system enabling purchases, through bids to buy; sales, through offers to sell; and short-term trading. A wholesale electricity market exists when competing generators offer their electricity output to retailers. The retailers then re-price the electricity and take it to market. In a competitive wholesale electricity market, owners of electricity resources submit offers to sell power to the system operator who delivers that electricity to utilities and other large electricity users. These markets, like all markets, follow demand and supply and provide price signals that allow power generators to determine what resources to maintain, build, or retire based on their ability to compete against all other generators.

Because power can be generated but cannot be stored in large quantities, it is largely delivered and consumed in real time as it is produced. To ensure power will be available in the future or to address system operational needs not related to the sale of power to end-use consumers, there are different types of markets to address these needs. For example, energy markets buy and sell power for real-time or day-ahead use, while capacity markets secure agreements from power providers to produce electricity at future date. The capacity market helps ensure power will be available by providing resources with a previously agreed-upon price to be available when needed, ensuring reliability and shielding customers from price spikes.

 What are Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs)?

In the United States, wholesale electricity markets are run by 7 grid operators known as Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). RTOs and ISOs are sometimes compared to air traffic controllers—they coordinate, control, and monitor the electric grid across many states (such as PJM Interconnection and ISO-New England) or in just one state (such as the New York Independent System Operator, the Electric Reliability Council of Texas, and the California ISO). Other operators include the Midcontinent Independent System Operator (MISO) and the Southwest Power Pool (SPP).

 Why is competitive power generation good for customers compared to a traditional monopoly utility model?

Customers win when companies compete. It just makes sense – if there is only one business in town, that business has no incentive to respond to customer demand, keep prices low, or improve service. The same is true for cars, cell phone service or grocery stores.

At one time, the electricity that powers our homes, businesses, and industries was entirely controlled by utilities that held a monopoly over established service areas. That means the utility owned and controlled power from the point of generation at the plant, to delivery through transmission wires, to the distribution wires that deliver it to your electric outlets and appliances—also known as a vertically integrated business model.

Unfortunately, under this monopoly scenario, which still exists in many parts of the country, utilities still largely have monopoly control over the generation, transmission, and distribution in their service areas. Because they were guaranteed a return on their operational costs and overhead, utilities often did not have any incentive to manage costs, and customers had little say in or understanding of what costs showed up on their monthly bills. Utilities also had little incentive to be more efficient or adopt new technology or cleaner resources such as renewables even as the price of those resources became more affordable.

In the 1990s, many states passed legislation to move power generation to a competitive market system. Since then, consumers and the grid have experienced significant benefits including greater efficiency, cost savings, innovation, and even emissions reductions.

Customers in states with vertically integrated utilities remain on the hook for utility commitments to capital projects even if they turn out to have significant cost overruns or questionable economics.

And in restructured markets the investors and owners assume the cost risks of those investments. That means there are no obligations for customers.

 How does competition among power generators help the environment?

Competitive power markets are a path to accelerate clean energy growth while maintaining a strong economy and keeping energy prices low. Clean energy has become increasingly cost competitive, with natural gas and renewable resources among the cheapest fuels on the market today. Power generators have followed price signals to retire thousands of megawatts of coal to switch to natural gas and renewables—resulting in tremendous emissions reductions without relying on expensive subsidies, rate passthroughs, or mandates.

Regional wholesale markets such as those overseen by PJM Interconnection, the New York Independent System Operator (NYISO), and ISO-New England provide significant benefits for customers and reliability. The markets have also resulted in emissions reductions as signals incentivized greater efficiency and coal plant retirements. In the PJM region alone, emissions have declined 34% since 2005, with annual cost savings of $3.2-4 billion. In New York, emissions have dropped 51% with a 23% decrease in costs since NYISO’s inception.

Learn more about how competitive power suppliers are improving our environment.

 What is the best way to reduce carbon emissions and slow climate change?

EPSA understands the need to reduce carbon emissions. Our member companies are actively working to do so. We support efforts to combat climate change through transparent, open, and nondiscriminatory competitive market mechanisms, such as an economywide price on carbon.

While some claim that environmental and energy goals are at odds, the truth is we can improve the environment, advance our economy, protect low-income customers, and ensure reliability—but we must preserve and expand competitive processes to accomplish all of these goals.

As they continue to invest in more efficient and cleaner power generation technology, including renewables, many EPSA members have long supported market-based mechanisms such as carbon pricing, and have adopted emissions reductions and clean energy targets, as well as joined coalitions with similar goals.

To achieve the best outcomes we must allow all resources to compete to reduce carbon and other emissions. Competitive markets that incorporate both environmental goals and reliability requirements will yield the lowest cost set of resources and technologies that jointly produce the greatest emission abatement while maintaining reliability.

There is broad consensus among economists and stakeholders including industry, policymakers, and advocates that market-based solutions such as carbon pricing are the most effective way to achieve deep decarbonization without sacrificing economic growth.

A competitive market approach will deliver results faster and at lower cost than a rigid patchwork of state mandates.

Learn more about how competitive power suppliers are improving our environment.