The document summarizes the history and regulation of electricity in the United States. It discusses: - How electricity consumption and production has changed over time, with coal being the leading production source. - The role of the Federal Energy Regulatory Commission (FERC) in overseeing wholesale electricity transactions and requiring cost-based pricing. - How regulations evolved from the 1940s to encourage non-utility generation and open up wholesale markets. However, retail competition remained limited. - Issues that arose in California in the 1990s and 2000s from its deregulation efforts, including utility insolvency due to rising power costs and frozen retail prices.

1. ELECTRICITY & ITS
REGULATIONS
Presented By:
Rabia Yousuf
BCOM-2511

2. Electricity consumption by Americans
in 2002
 3463 mwh with a delivered value of $249.6
billion.
 37% by Households
 32% by commercial users
 28% by industrial users

3. Electricity production by U.S in 2002
 50.1% by coal
 17.9% by natural gas
 20.2% in nuclear units
 6.6% as hydroelectricity
 2.35% by wind & solar

4. Main Characteristics of Electricity
 Continuous operation by reserve power plants
 Centralized control to meet any changes in regional
conditions.
 Efficient duplication to facilitate emergency support,
coordinated operations and power purchases and sales.

5. Role of Federal Energy Regulatory
Commission (FERC)
 FERC oversees ‘wholesale’ or ‘bulk’ transactions.
 It requires that wholesale prices be cost based.
 FERC accepts prices set by markets to meet standards
for competition.

6. General Policy of FERC
 To expand the role of markets
 To decrease direct regulation subject to the
law’s limits.

7. Electricity’s Ownership Structure in
1998
 66.1% of generating capacity was owned by
Corporate utilities
 10.7% by Governmental utilities
 3.1% by cooperatives
 11.9 by nonutility generators

8. Electricity Regulation from 1940s
through 1960s
 Regulation function was well enough
 Retail competition was prohibited by states
 Industry grew more capital intensive
 Arrival of Nuclear generators that could
produce cheap power

9. Electricity Regulation from 1970s
through 1980s
 Oil prices rose higher
 Shortage of natural gas
 Technological progress slowed down
 Costs of existing plants raised
 Greater risk of unstable prices
 Regulatory uncertainty

10. Public Utility Regulatory Policy Act
(PURPA) of 1978
 Opened wholesale markets to non utilities
 Encouraged industrial generation from waste
heat ‘cogeneration’
 Cogeneration led to larger nonutility
plants --- whose output was cheaper for utilities
to purchase than to generate themselves

11. Electricity Regulation from 1980s
through 1990s
 Regulators, consumers and utilities began
reconsidering markets
 New transmission and control technologies
came
 Inter utility exchanges grew faster than retail
sales
 New gas-fired generators became as cheap
as coal-fired plants

12. Energy Policy Act (EPAct) of 1992
 Allowed transmission owners to carry power
for other wholesale parties
 Nonutility generators could access any willing
counterparty
 Transmission access allowed municipal
utilities to become independent

13. Electricity Regulation from 1990s
onwards
 Utility purchases from non utilities grew more
than twice as fast as retail sales
 Retail customers still lacked choices
 Control technologies allowed reliable flows
over distances of one thousand miles
 Power marketers traded more than 1.5 billion
in 1999

14. California Public Utilities Commission
(CPUC) 1994
 CPUC was the first to investigate choice for retail
customers
 CPUC’s research staff blamed overregulation
 CPUC Proposed greater reliance on markets
 Competitive suppliers and many retail users
welcomed their proposal

15. Resistance against CPUC
California’s three large corporate utilities
resisted CPUC proposal claiming that:
 Competitive prices would not allow them to
recover about $20 billion in PURPA contracts

16. Approval of Assembly Bill 1890 in 1996
CPUC agreed to the utilities’ claim resulting in approval of
Assembly Bill 1890 by California’s legislature in 1996
 This was an internally inconsistent compromise to ensure non
discriminatory use of transmission
 Utilities had to divest in-state gas-fired generation
 Utilities had to purchase all powers from markets
 Risk management activities were prohibited
 It froze retail prices until 2002

17. Electricity Regulation from April 1998-
2000
 Supply and demand kept prices low to recover
stranded costs
 Natural gas supplies became limited and expensive
 Electricity became quite expensive
 Great Increase in the price of pollution permit

18. Electricity Regulation from April 1998-
2000….continued
 Utilities faced insolvency as rising power costs met
frozen retail prices
 Short term energy prices were high
 FERC reluctantly capped short term prices and lost
creditworthiness
 California’s situation deteriorated badly in 2000

19. Electricity Regulation from 2001-
2003
 State government took over power
purchasing
 Hydroelectric conditions improved
 Market prices fell to their pre-crisis levels
 Californian’s were locked into un-economical
contracts whose costs must be allocated

20. Electricity Regulation from 2001-
2003……continued
 State’s utilities tried to adopt previous
monopoly roles
 Fixed stranded cost payoffs were added to
everyone’s bills
 Customers were given access to markets
that existed for years prior to reform

21. Electricity Regulation in 2004
onwards
 78% of the industrial power in New Jersey
was supplied by 30 non utility providers
 Utilities stopped supplying power to the
industrial users in New York
 New York state already had 33 non utility
sellers struggling for customers

22. Conclusion
According to the case in discussion, USA is
still a long way from fully competitive markets
BUT
Even the limited competition available
is producing considerable benefits

23. THANK YOU ALL