The Changing Structure of the Electric Power Industry 2000: An ... - EIA

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Part I: The U.S. Electric Power Industry as a Regulated Monopoly
2. Historical Overview of the Electric Power Industry At the beginning of the 20 th century, vertically integrated 1 electric utilities produced approximately twofifths of the Nation's electricity. At that time, many businesses (nonutilities) generated their own electricity. When utilities began to install larger and more efficient generators and more transmission lines, the associated increase in convenience and economical service prompted many industrial consumers to shift to the utilities for their electricity needs. With the introduction of the electric motor came the inevitable development and use of more home appliances. Consumption of electricity skyrocketed along with the utility share of the Nation's generation. Utilities operated in designated exclusive franchise areas which, in the early years, were usually municipalities. Along with the service area designation came the obligation to serve all consumers within that territory. “The growth of utility service territories . . . brought State regulation of privately owned electric utilities in the early 1900s. Georgia, New York, and Wisconsin established State public service commissions in 1907, followed shortly by more than 20 other States. Basic State powers included the authority to franchise the utilities; to regulate their rates, financing, and service; and to establish utility accounting systems.” 2 The early structure of the electric utility industry was predicated on the concept that a central source of power supplied by efficient, low-cost utility generation, transmission, and distribution was a natural monopoly. Because monopolies in the United States were outlawed by the Sherman Antitrust Act, 3 regulation of the utilities was a necessity. In addition to its intrinsic design to protect consumers, regulation generally provided reliability and a fair rate of return to the utility. The result was traditional rate-based regulation. 4 Electric utility holding companies 5 were forming and expanding during the early 1900s, and by the 1920s they controlled much of the industry. By 1921, privately owned utilities were providing 94 percent of total generation, and publicly owned utilities contributed only 6 percent. 6 At their peak in the late 1920s, the 16 largest electric power holding companies controlled more than 75 percent of all U.S. generation. 7 Originally formed to reap the benefits (mostly of a financial nature) of centralized ownership of a multitude of subsidiaries, these unregulated holding companies were in a position to abuse their power over their subsidiaries. Sometimes, the result was increased prices paid by consumers of electricity. Because the States could not regulate an interstate holding company, it became apparent that the Federal Government would have to step in. After several large holding company systems collapsed, an investigation by the Federal Trade Commission was ordered, leading eventually to the passage of the Public Utility Holding Company Act of 1935 (PUHCA). Under the provisions of the Act, holding companies became regulated by the Securities and Exchange Commission. Under Title II of PUHCA utilities involved in interstate wholesale marketing or transmission of electric power became regulated by the Federal Power Commission (FPC). 8 1 A vertically integrated utility is one which engages in generation, transmission, and distribution operations. 2 Energy Information Administration, Annual Outlook for U.S. Electric Power 1985, DOE/EIA-0474(85) (Washington, DC, August 1985), p. 3. 3 The Clayton Antitrust Act of 1914 strengthened the Sherman Antitrust Act of 1890. 4 This form of rate setting has been blamed by some groups for removing the incentive for utilities to achieve maximum efficiency in operations and planning, thereby exhibiting the major flaw in this type of regulation and promoting the push for its demise. 5 A holding company is a company that confines its activities to owning stock in and supervising management of other companies. The Securities and Exchange Commission, as administrator of the Public Utility Holding Company Act of 1935, defines a holding company as “a company which directly or indirectly owns, controls or holds 10 percent or more of the outstanding voting securities of a public utility company” (15 USC 79b, par. A (7)). 6 Energy Information Administration, Annual Outlook for U.S. Electric Power 1985, DOE/EIA-0474(85) (Washington, DC, August 1985), p. 3. 7 Encyclopedia Americana, International Edition, Vol. 22 (New York, NY: Americana Corporation, 1977), p. 769. 8 In October 1977, many of the regulatory powers of the FPC were transferred to the Federal Energy Regulatory Commission (FERC). Energy Information Administration/ The Changing Structure of the Electric Power Industry 2000: An Update 5
Page 1 and 2: DOE/EIA-0562(00) Distribution Categ
Page 3 and 4: Section 205(a)(2) of the Department
Page 5 and 6: Contents (Continued) Page Appendice
Page 7 and 8: The U.S. electric power industry, t
Page 9 and 10: Figure ES2. Status of State Electri
Page 11: egulation coexist. Chapter 2 presen
Page 15 and 16: Table 1. Percentage Change Between
Page 17 and 18: Generation of electricity 3. The U.
Page 19 and 20: Figure 3. Prime Movers of Electrici
Page 21 and 22: California’s tight restrictions o
Page 23 and 24: follow the directions of NERC. The
Page 25 and 26: Table 2. Major Characteristics of U
Page 27 and 28: Table 4. Energy Supply Participants
Page 29 and 30: from other utilities and market lar
Page 31 and 32: Figure 13. Shares of Nonutility Nam
Page 33 and 34: Figure 15. Total Utility and Nonuti
Page 35 and 36: Figure 17. Electric Utility Wholesa
Page 37 and 38: 33 PUHCA and PURPA are now being ta
Page 39 and 40: (2) such holding company is predomi
Page 41 and 42: a new avoided cost for purchased po
Page 43 and 44: Major Federal Legislation Affecting
Page 45 and 46: a SEPA markets power in West Virgin
Page 47 and 48: Part II: The U.S. Electric Power In
Page 49 and 50: Figure 23. Status of State Electric
Page 51 and 52: Figure 25. Average Revenue per Kilo
Page 53 and 54: 6. Federal Legislative Initiatives
Page 55 and 56: for establishing the reliability st
Page 57 and 58: Those who are against outright repe
Page 59 and 60: The Comprehensive Electricity Compe
Page 61 and 62: Table 8. Proposed Legislation Influ
Page 63 and 64:
Table 8. Proposed Legislation Influ
Page 65 and 66:
Table 8. Proposed Legislation Influ
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62 Table 9. Overview of the Federal
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on the same basis and under the sam
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and a half. 86 The overwhelming maj
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transmission system, and achieve fu
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70 Table 12. Summary of Major Provi
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72 Table 12. Summary of Major Provi
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company (Transco) model. With the I
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Table 13. Selected Information on I
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78 � Recently, � In FERC accept
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approved more than 850 applications
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up, and, at the same time, deregula
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is publicly available. The PX then
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companies were required to report t
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price that each utility pays for su
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Kentucky In December 1999, Kentucky
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92 Energy Information Administratio
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Page 101 and 102:
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Figure 29. Concentration of Ownersh
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100 Energy Information Administrati
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Table 17. Overview of Strategic Ben
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Table 18. Government Agencies Respo
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competition. Some States have passe
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expected as some of the pending mer
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Appendix A History of the U.S. Elec
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areas and towns with populations un
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New technology introduced during th
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From 1980 through 1984, net electri
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Appendix C Pending Federal Restruct
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� Establishes a fund within the D
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mation and that prohibit discrimina
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dioxide, mercury, and sulfate fine
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H.R. 2944 Electricity Competition a
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� Prescribes specifics regarding
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if conflict arises. Authorizes TVA
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� Directs the Department of Energ
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Appendix D Electric Power Industry
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on a number of subject areas, inclu
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Table D1. Electric Power Industry S
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