How do states regulate public utilities

The law ended abuses that allowed a small number of public utilities to control large segments of the gas and electricity market and to set higher utility rates. Public regulation of utilities has declined since the late s.

Public policy is now based on the idea that competition rather than regulation is a better way to manage this sector of the economy. Airline and telephone deregulation are the most prominent examples of this shift in philosophy.

This resulted in the creation of seven regional telephone companies with responsibility for local telephone service. At the federal level, numerous commissions oversee particular types of public utilities. The Secretary of Commerce at the time, no doubt ignorant of the legal precedents in other sectors, was heard to say, "I think this is probably the only industry in the US that is unanimously in favor of having itself regulated.

A lame compromise was found in the Radio Act of , which divided regulatory powers between the Department of Commerce and a temporary commission initially set up for a one- year period , and completely devoid of any means to enforce the law. It was not until the Democrats came into power under Roosevelt that an inter-department committee would be given the job, which led to the Communications Act of and the creation of the Federal Communications Commission FCC.

Unlike the Federal Power Commission, this new agency was granted jurisdiction to conduct investigations into mergers and over the capital assets of the companies involved. This new agency thus assumed the same powers as the ICC for telephone and telegraph, but with the difference that its authority was much broader.

Conclusion: the institution of a bi-polar system of regulation. At the end of this period, a bi-polar system of regulation was firmly set up, in which, however, two different types of logic existed side by side. The logic of the antitrust laws sought to correct the most obvious excesses. The logic of the commissions and regulations was more a mechanism of compensation- substitution in an imperfect marketplace, over a background of compromise.

These intersected in some places but diverged in terms of rationale. At different times one would be invoked more frequently than the other. The change of climate which had made possible increasing intervention by public authorities went along with a new belief in the impossibility of "perfect competition. Indeed, during the thirties, a new belief in the inevitable nature of concentration was born. This led to a change in emphasis for the prevention of excesses through legal means: it was now accepted that certain monopolies were a necessary evil to be closely controlled rather than avoided.

Thus the National Recovery Act of , in answer to the economic crisis, by and large suspended application of antitrust laws for those sectors of industry which were the hardest hit. This change in emphasis brought about conflicts in interpretation, between antitrust motivations and regulatory control motivations. Another consequence of this historically constituted distinction between two kinds of regulation clearly brought out that the most inhibiting element was not in regulation, but in the antitrust laws.

On the contrary: controlling the number of entries into the market could in fact appear as largely favorable to the protection and development of industry. Commenting on this tendency as early as , the analysts of the Brookings Institution an independent research institution , could write: "In the new trend i. Anti-regulation criticism at this time was thus either judicial non-respect for, or immunity from the antitrust laws , or else economic the debatable and imperfect nature of markets.

In the legal domain, Paul A. From the point of view of economics, the cover- up between the existence of controls, monopolies and specific protection given to certain industries was exposed in various ways: by insisting on the partiality given to certain private interests under cover of public utility or service, as was done by the Brookings Institution economists, for instance; or by calling into question once again the economic bases of these interventions.

Horace M. Gray, one of the principle commentators of the forties, author of a well-known article criticizing the rule of these public utilities corporations14 laid the blame on what was, to his way of thinking, a fallacious concept, namely that of "natural monopoly": "the fiction of 'natural monopoly' was invented to explain the centripetal tendencies then observable. This was indeed an indirect effect, historically speaking, of the intersection of the phenomenon of regulation and of monopoly, and it was always possible to deduce that the former was no longer necessary, if the latter was avoidable.

The Limewood Sculptors of Renaissance Germany. New Haven, Conn. Telephone: The First Hundred Years. New York: Arno 1st ed. The Politics of Deregulation. Washington, D. Philadelphia: Temple Univ. Westport, Conn. KAHN, A. The Economics of Regulation: Principles and Institutions. Cambridge, Mass: MIT, NOLL, R. Arlington, Va. Chicago: Chicago Univ. Paris: L'Harmattan. The Politics of Regulation. New York: Basic Books.

Logiques Juridiques, See Gabriel Dupuy and Joel Tarr, eds. Quoted in L. Friedman, A History of American Law, 2nd ed. Leverett S. Lyon, Myron N. I Washington, D. Italics mine. In Douglas D. On this period of development in electrical systems, and on the role play by S. Insull, see also Marion L. Platt, The Electric City, Anderson, op. Insull, ; in Platt, op.

The price structure adopted is described in note 51, p. Quoted by E. Krasnouw, L. New York: St. Martin's Press, Lyon, M. Watkins, V. Abramson, op.

Western Electric was also to become a public utility service. This leitmotif of the Walker report came out again 50 years later during the actual divestiture. See especially Part II, ch. See N. New York: Arno, Quoted by A. The origins of US public utilities regulation: elements for a social history of networks [article] Jean-Paul Simon.

Traducteur : Judith Crews. The NRC periodically renews nuclear power plant licences by conducting a technical review, an integrated plan assessment and an environmental study. The Occupational Safety and Health Administration has issued rules concerning utility employee workplace safety. What requirements are there concerning connection of generation to the transmission network or a distribution network?

Interconnection of generation facilities with the transmission grid is regulated by the FERC. Interconnection agreements cannot impose additional obligations on the parties unless the FERC has authorised terms and conditions that are different from the applicable standard form.

The FERC has issued several orders that set out policies governing the interconnection of different sized generators, including separate standards applicable to facilities with over 20 MW, 20 MW or less, and large wind generation facilities. The FERC can require the establishment of an interconnection between transmission and generation facilities.

The NERC also has standards and rules regarding the interconnection of generation facilities to the bulk transmission grid. What requirements are there concerning the decommissioning of a generation plant at the end of its period of operation?

Decommissioning power plants can be subject to various state and federal requirements. However, the decommissioning of generating facilities other than nuclear and hydroelectric generating facilities is not subject to a standardised set of federal energy regulatory requirements, apart from environmental regulations. Power plant decommissioning generally involves electric generation equipment being shut down and operating permits being terminated. Unused fuel and other materials are removed or sold, and generating equipment and on-site structures can be sold as scrap if they are not repurposed.

The land on which the facility is located may need to be remediated or redeveloped. Coal-fired plants may present some environmental issues in closing for example, ash pits. However, owners of hydroelectric facilities can surrender a licence or exemption only upon FERC approval, and the decommissioning of nuclear generating facilities is highly regulated by the NRC, and generally must correspond to one of several FERC-authorised models. There may also be state rules and requirements applicable to the termination of service from, and the removal of, electric generating equipment, and the rights of affected employees, which will vary by state.

Electricity transmission Authorisation and operating requirements. What are the authorisation requirements to construct electricity transmission networks? The siting and construction of transmission facilities is generally regulated by state regulatory agencies. A transmission facility may not be constructed in any state unless authorised by the state public utilities commission and, in some cases, other state agencies in each affected state.

Each state has its own rules, regulations and guidelines concerning the siting and development of transmission facilities. State review of transmission projects may include environmental impact studies, a public hearing for affected landowners and considering whether the exercise of eminent domain is appropriate. Federal projects are subject to the National Environmental Policy Act , which requires the applicable federal agency to review the environmental impacts of the proposed project.

What are the authorisation and main ongoing requirements to operate electricity transmission networks? Every public utility transmission owner and operator of facilities that are used to transmit electricity in interstate commerce must have an OATT on file with the FERC see Question 3, Unbundling requirements.

The OATT sets out the minimum rules and procedures with which all interstate public utility transmission owners and operators must comply. All interstate transmission facilities must be operated in accordance with NERC's reliability standards, which set out rules and requirements for the reliability of the bulk electrical transmission system.

Authorisation must be obtained from the DOE to transmit electric energy across the international borders with Canada and Mexico. Transmission charges. How are the charges and conditions for the transmission of electricity regulated? The FERC has mandated the unbundling of services so that electric generation and transmission are offered as separate products see Question 3, Unbundling requirements.

The FPA requires that charges for transmission rates are just and reasonable, and that no public utility grants undue preference or advantage to any entity or charges different rates to similarly situated transmission customers.

Transmission rates vary, but the most common types are:. Point-to-point, which is based on the distance the electricity travels.

Postage stamp, which is a single rate regardless of distance between contractual receipt and delivery points. Licence plate, which is based on pre-identified zones. Transmission customers may have to pay multiple rates if the power is transmitted over multiple areas or zones known as pancaked rates or if the power is transmitted across the systems of more than one transmission provider.

In general, transmission rates are cost-based unlike wholesale generation rates which are typically market-based. Additionally, the Energy Policy Act directed the FERC to offer a number of incentive-based interstate transmission rate treatments.

System balancing How is electricity supply and demand balanced? Electric utilities must have sufficient energy and capacity to meet demand. In the event of an emergency involving a shortage of generation or transmission, temporary interconnection and transmission of energy can be ordered under the FPA. Electricity distribution Authorisation and operating requirements. What are the authorisation requirements to construct electricity distribution systems?

State public utilities commissions and other related agencies in some states generally have jurisdiction over the construction of electricity distribution systems. In both retail choice states and states subject to traditional bundled regulation, utilities are granted franchised service territories for their distribution operations. It is unusual for a state public utilities commission to permit a different utility to provide any distribution services in a utility's franchised service territory.

A state public utilities commission reviews applications to construct new electric distribution systems or upgrades to determine whether they comply with state laws and regulations. State public utilities commissions typically look at environmental, technical, public interest and economic factors in deciding whether to approve a project. In addition, co-operatives and municipalities may construct distribution facilities with financing assistance from the US Department of Agriculture.

What are the authorisation and the main ongoing requirements to operate electricity distribution systems? The ongoing requirements to operate electricity distribution systems vary by state. Such laws and regulations aim to ensure that facilities continue to meet minimum reliability, safety and operational standards.

Also, local distribution facilities in some states are owned and operated by the customers they serve known as a co-operative. Municipalities and co-operatives are subject to limited regulation by the FERC, and are mostly self-regulated although the extent of self-regulation and governmental oversight varies from state to state.

Investor-owned utilities may have to obtain and pay for a franchise granted to serve a municipality depending on the state and locality. Distribution charges. How are the charges and conditions for the distribution of electricity regulated?

State public utilities commissions regulate the charges and conditions of service for electric distribution service by investor owned utilities. Typically, a state public utilities commission sets rates to recover the costs traditionally incurred by a utility to provide service that is, the cost of debt, operation and maintenance costs, administrative and general expenses, plus a return of and on equity. Changing the allocation methodology can substantially affect an aggregate share of costs of a customer class and the cost borne by an individual customer.

State public utilities commissions also can establish customer charges, demand charges and energy charges, which are all components of a total rate. State utilities commissions also may determine which are more appropriate: demand charges which do not vary with use or volumetric charges which vary with use. Some states also provide for utilities' recovery of the costs of items that are non-traditional or are subject to potential volatility in cost levels such as environmental or fuel costs.

Such costs may be collected through clause recoveries that are in addition to base rates, which provides greater assurance that the specific amount of that cost is collected regardless of the level of the utility's sales. Electricity supply Authorisation and operating requirements. What are the authorisation and the main ongoing requirements to supply electricity to end consumers? State public utilities commissions have jurisdiction over the supply of electricity to end users.

The scope of this jurisdiction depends on whether the state has authorised retail choice that is, retail competition or not. In retail choice states, retail customers can choose between the franchised public utility serving their territory and other competitive suppliers when purchasing electricity.

Retail customers with retail choice are not charged for the commodity of electric energy under "cost-based rate regulation". Instead under state law they can purchase electricity at market-based rates from competitive suppliers other than a franchised public utility, although the latter may arrange default supplies.

Therefore, while state commissions may regulate the price, terms and conditions associated with retail electricity from franchised public utilities, state commissions typically do not regulate electricity prices from competitive suppliers although they typically license the suppliers and impose other conditions on them. Trading between generators and suppliers.

How is electricity traded between generators and suppliers? Some parts of the US still have vertically-integrated utilities that generate their own electricity. Where that is not the case, electricity is typically traded between generators and suppliers through bilateral contracts or organised wholesale markets. For example, a generator and a supplier such as an LSE can enter into a bilateral agreement for the sale and purchase of power.

Suppliers can also purchase power at market-based rates from organised wholesale electricity markets, such as those operated by ISOs and RTOs. Entities that are deemed to own qualifying facilities can obligate their local utility to purchase electricity from them at the utility's avoided cost, although the FERC has been taking steps to diminish the opportunity to do so. How is electricity trading between generators and suppliers regulated?

Electricity trading between generators and load serving entities typically occurs through one or both of the following:. Sellers that clear in an auction generally are paid the market clearing price see Question 3, Unbundling requirements. If a wholesale seller is found to have violated conditions on its market-based rates such as failing to show in reports filed on a triennial basis that it and its affiliates lack market power, or has not filed the required reports , its authorisation to charge market-based rates may be revoked.

Bilateral agreements. The supply of electricity can also occur through bilateral agreements between buyers and sellers of a specified amount of electricity at a given price. Wholesale sales of electricity in interstate commerce are regulated by the FERC and can be market-based most sales are market-based or cost-based. The most common example for the latter is the payment of a rate to a reliability must run unit which is usually a unit that cannot operate economically but is needed for reliability.

See Question Electricity price and conditions of sale. How is the price for electricity and conditions of sale regulated at the consumer and wholesale level? Consumer Rates and conditions at the consumer level that is, retail are established by state public utilities commissions, or, in the case of municipally-owned utilities and co-operatives, by the governing board or city council. Rates established by a state public utilities commission will usually contain several components, including energy charges, demand charges, customer surcharges and sometimes environmental surcharges which are often used to fund state clean energy programs.

Wholesale Wholesale rates and conditions are regulated by the FERC under the FPA, which requires that rates for wholesale sales in interstate commerce must be just and reasonable and not unduly discriminatory.

The FERC can grant at the utility's request , market-based rate authorisation, which allows the utility to charge the market price of the electricity product if the utility lacks or has mitigated market power in a particular market.

Alternatively, the FERC may regulate rates and conditions through cost-of-service rates, although cost-based wholesale rates now are the exception, as cost-based rates are much less common than market-based rates. Additionally, four federal power marketing agencies PMAs operate electric systems, and market and sell the electrical output primarily of federally-owned and operated hydroelectric dams in 33 states. Statutory powers Do companies involved in the generation, transmission, distribution or supply of electricity have any statutory powers to undertake work for example, compulsory purchase powers or street works powers?

The actions utilities may take in the intrastate retail market are subject to state jurisdiction, with each state having different rules and regulations. If a utility acquires a franchise from a municipality, it likely will be given power to access existing rights of way.

Generally, a utility's retail tariff specifies the scope of actions the utility can take.