1	Electric Industry Overview History, Structure and Regulation Martin Blake The Prime Group, LLC 502-425-7882
2	Types of Utilities Providing Electric Service Investor owned utilities – shareholders provide financial resources necessary to meet the needs of customers Cooperatives – owned by the customers to whom they provide service Municipal utilities – provide service to customers living within the municipal boundaries
3	Electric Utility Regulation Utilities have a monopoly within their service territory Utilities have an obligation to serve Utilities provide bundled electric service (inputs through delivery to end use customers)
4	Electric Utility Regulation Rates based on average embedded cost of providing service to customers Recovers all prudently incurred fixed and variable costs Includes a fair return on capital invested to meet customer needs Flat rates with little price variability Rate cases Fuel adjustment clause
5	Electric Industry Restructuring Introduce competitive elements into the process of providing electric power Since EPAct 1992, a competitive wholesale power market has developed Retail competition has been or is scheduled to be introduced in about half of the states Generation would become a competitive service and would be deregulated Transmission and distribution would remain monopoly services
6	State Electric Jurisdiction Retail rates and service rendered by electric utilities Includes investor owned utilities Excludes municipalities May exclude cooperatives (11 states regulate cooperatives) Rates must be fair, just and reasonable Service must be adequate, efficient and reasonable
7	Scope of State Electric Regulation Rates Rulemaking Construction of utility facilities (CCNs) Complaints Approval of financings Mergers Determining utility service boundaries Safety
8	Determining Rates Cost based rates Revenue requirement Rate design Special Contracts Performance based rates Indexed on inputs Indexed on outputs Indexed on outcomes Economic development
9	Rulemaking In a monopoly environment – determining terms and conditions of service Line extension policy Disconnects Reconnects Late payment charges Testing of meters Service standards
10	Rulemaking In a competitive retail choice environment – setting and enforcing the rules of the competitive game Rates, terms and conditions for delivery service Customer information Affiliate transactions Metering and billing Rules for switching providers Use of company logo
11	Certificates of Convenience and Necessity Generation facilities Transmission facilities Commission involvement in system planning (integrated resource plans)
12	Complaints Resources to handle at the Commission Alternative dispute resolution Public comment hearings Commissioner involvement
13	Financings Issuance of securities Assumption of securities Threshold amount varies by state
14	Mergers State Approvals Customer benefits Company benefits
15	Safety Safety regulations Minimum system requirements
16	Future State Electric Responsibilities Establishing rules for retail choice All parties will attempt to use the regulatory process to their advantage Enforcing rules for retail choice Educating customers dealing with price variability
17	FERC Jurisdiction Wholesale electric sales Transmission of electricity in interstate commerce Regulated Entities Investor owned utilities Power marketers Power pools Power exchanges Independent system operators
18	Scope of FERC Electric Regulation Rates Transmission Wholesale power Uniform System of Accounts Transmission open access Rulemaking Mergers Complaints Determination of EWG and QF status Financings Issuance of certain stock and debt securities Assumption of obligations and liabilities
19	Rates for Wholesale Power Cost Based Market based Lack of generation market power – hub and spoke analysis Lack of transmission market power – filed pro forma open access transmission tariffs (OATT) Lack of barriers to entry/reciprocal dealing No affiliate abuse
20	Rates for Transmission Service Cost based Transmission rates for ISOs Single ISO-wide rate Zonal rates Nodal marginal cost pricing Megawatt mile Jurisdictional utilities must provide open transmission access (the golden rule in Order No. 888)
21	Types of Transmission Service Point-to-Point Service Firm Point-to-Point Non-Firm Point-to-Point Transmission Provider must use Point-To-Point Transmission Service for its off-system sales Network integration transmission service
22	Ancillary Services Necessary to support reliable system operations Provided using generation capacity Order No. 888 requires transmission providers to offer 6 ancillary services
23	Order No. 888 Ancillary Services Scheduling, system control and dispatch service - scheduling, confirming and implementing interchange schedule, ensuring operational security during the interchange transaction Reactive supply and voltage control service - Provide reactive power and maintain transmission line voltage
24	Order No. 888 Ancillary Services Regulation and frequency response service - following the moment to moment variations and maintaining scheduled frequency Energy imbalance service - provide energy correction for any hourly mismatch between a transmission customer’s energy supply and the demand served
25	Order No. 888 Ancillary Services Operating reserve, spinning reserve - generators that are on line, loaded to less than their maximum output, and available to serve customer demand immediately should a contingency occur Operating reserve, supplemental reserve - generators that can respond to a contingency within a short period (usually 10 minutes)
26	Order No. 889 Establishes Standards of Conduct Open Access Same-Time Information System (OASIS) - An electronic posting system for transmission access data that allows all transmission customers and interested parties to view the data simultaneously
27	Generation Issues Reliability Generation interconnection standards Wholesale price spikes
28	Transmission Issues Contract path approach Parallel flows Coordinating grid activity Regional Transmission Groups (RTG) Independent System Operators (ISO) Regional Transmission Organization (RTO) Transmission companies (TRANSCO) Reliability
29	Transmission Issues Accuracy and timeliness of OASIS postings Transmission Line-Loading Relief (TLR) Capacity Benefit Margin Transmission constraints Use of transmission to benefit generation
30	Mergers Order No. 592 is a Policy Statement that updates and clarifies the Commission's procedures, criteria and policies concerning public utility mergers the effect on competition the effect on rates the effect on regulation
31	Certifying QFs and Small Power Producers Ownership requirements Less than 50% ownership by electric utility or electric utility holding company Technical and efficiency requirements Small Power Producer solar, wind, waste or geothermal facility fossil fuel use will not exceed 25 percent of the total annual energy input limit
32	Small Power Producers Solar, wind, waste or geothermal facility Fossil fuel use will not exceed 25 percent of the total annual energy input limit Use of fossil fuel is limited to ignition, start-up, testing, flame stabilization, control use, and minimal amounts of fuel required to alleviate or prevent unanticipated equipment outages and emergencies directly affecting the public
33	Qualifying Facilities Operating standard = 5% or more Efficiency standard for natural gas and fuel oil used in a topping cycle 45% when operating value is less than 15% 42.5% when operating value is greater than or equal to 15% Efficiency standard for natural gas and fuel oil used in a bottoming cycle is 45% or more
34	Exempt Wholesale Generators Established by the Energy Policy Act of 1992 Not considered electric utilities and are therefore exempt from the Federal Power Act and PUHCA EWGs can be constructed anywhere, including foreign countries Both registered and exempt holding companies under PUHCA may own and operate EWGs
35	Exempt Wholesale Generators A portion of a generating facility can be considered an EWG if the other part of the facility is not owned by a utility affiliated with the EWG Electricity from these facilities that is sold in the United States must be sold at wholesale to a utility or other generator, not to retail customers
36	State Responsibilities That May Shift to Federal Siting of transmission Regulation of transmission used in retail transactions
37	Shift in Regulatory Focus Regulator – In a monopoly environment Referee – In a retail choice environment With delivery service likely to remain a monopoly and generation likely to become competitive, the mission for regulatory agencies will change and will likely grow larger
38	Shift in Focus From paper filing to electronic filing From access to filings at the Commission to access to filings over the internet From litigation to arbitration and mediation Increased focus on customer education and communication