	Background

Before restructuring, electric service was provided primarily by federal- and state-regulated investor-owned electric utilities. Power plants in Texas generate nearly all of the electricity that the state consumes. In contrast, in California, developers added about 4,600 megawatts, or 25 percent of the forecasted need for capacity through 2004, and in Pennsylvania, developers added about 2,100 megawatts, or less than half of its forecasted need through 2004. The States Had Different Needs for New Power Plants

In 1995, when U.S. electricity markets were beginning to restructure, NERC forecast that already planned new plant construction would adequately meet the needs of the regional markets that include each of the three states through 2004. Regulatory Processes Are Generally Similar in the Three States, Although California Requires an Additional Approval

In the three states we reviewed, state and local agencies responsible for air and water quality and land use decisions review applications for constructing and operating power plants to ensure compliance with relevant laws and regulations. The administrative law judge then makes a recommendation to the permitting agency. Connecting New Power Plants Is Less Costly and Faster for Developers in Texas Than in the Other Two States

The market rules for connecting a new power plant to the local transmission system (referred to as interconnection) in Texas differs markedly from those in California and Pennsylvania. Other developers said that they will invest in riskier projects if expected profits are higher. Lower Potential Profits and Higher Risks in California Delayed, and May Continue to Delay, Investment

According to electricity industry analysts, profitability and risk considerations in California delayed proposals to build power plants in the state. An applicant submitting its permit application to DEP must provide proof of coordination.
What GAO Found

Twenty-four states and the District of Columbia have restructured electricity markets by shifting from service provided through a regulated monopoly to service provided through open competition among the local utilities and their competitors. The restructuring was intended to boost competition and expand consumer choice, increase efficiency, and lower prices. Of the three states GAO studied, Texas had the greatest need for additional electric power, and it added the most new capacity from 1995 through 2001. In contrast, California added 25 percent of the forecasted need for capacity over this period. Although Pennsylvania added less than half of its forecasted need for capacity, the state continues to be a net exporter of electricity to nearby states. The three states have similar processes for approving applications to build and operate new power plants. In all three states, state and local agencies must review the applications to ensure that the developer complies with environmental, land use, and other requirements before issuing the permits necessary to build and operate a power plant. California also has a state energy commission that reviews each power plant application to determine whether the benefits of additional electricity outweigh its likely negative environmental or other effects. Texas' rules for connecting new power plants to the electricity transmission system are less costly for independent developers and are administratively simpler than the approaches used in California and Pennsylvania. In deciding where to build new power plants, independent developers said they weigh a market's risks, including uncertainty about changes in a state's market rules, against expected profits. Higher risks require higher expected profits.