1. Sec. 4 -REGULATED UTILITIES THE EARLY YEARS STATE PUCs FEDERAL AGENCIES CHANGES This product was funded by a grant awarded under the President’s Community-Based Job Training Grants as implemented by the U.S. department of labor’s Employment and Training Administration. The information contained in this product was created by a grantee organization and does not necessarily reflect the official position of the U.S. Department of labor. All references to non-governmental companies or organizations, their services, products, or resources are offered for informational purposes and should not be construed as an endorsement by the Department of Labor. This product is copyrighted by the institution that created it and is intended for individual, organizational, non- commercial use only.

2. Sec. 4 -REGULATED UTILITIES-Early Years Forms of regulation in Early Years- 1800s – JUDICIAL – LEGISLATIVE – FRANCHISE JUDICIAL – “Common Law” developed from one lawsuit to the next Costly- unaffordable by some who had suffered damages Courts deficient- unqualified accounting of complex issues

3. Sec. 4 -REGULATED UTILITIES-Early Years JUDICIAL (cont) – Courts could not take legislative action (ruled only on matters at hand, not capable of setting matters straight for the future) STANDARDS OF COMMON LAW –from Judicial Regulation 1.Monopoly and Restraint of Trade found contrary to public interest 2.Common Callings Businesses must serve all consumers at a reasonable cost and without discrimination

4. Sec. 4 -REGULATED UTILITIES-Early Years LEGISLATIVE -early 1800’s local late 1800’s state – Utilities gained incorporation through legislative bodies who granted charters with corporate rights such as eminent domain – Unlike the courts in Judicial regulation, Legislative bodies set rates and in some cases legislatures held percentages of common stock (i.e. $$$$) – Legislative regulation proved ineffective in keeping up with changing economics (representative government was too slow a process)

5. Sec. 4 -REGULATED UTILITIES-Early Years FRANCHISE – Precursor to State regulation – Still exists in parts of Texas and Nebraska – Owners required to acquire a franchise from city councils – Complete business form spelled out in franchise Service standards Rates Accounting methods Franchise renewal methods

6. Sec. 4 -REGULATED UTILITIES-Early Years FRANCHISE (CONT) – Franchises granted for a flexible duration, not necessarily the life of a plant by city councilors – Council members subject to influence (payoffs, bribes etc.) – Reduced investor confidence (lower investment returns required long term assurances – Economics of scale (more customers and larger service areas improve economics of electric distribution) led to service areas to overlap cities confounding the franchise method of regulatio

7. Sec. 4 -REGULATED UTILITIES-Early Years BEGINNINGS OF STATE REGULATION – Developed in mid/late 1800’s – Nonpartisan agencies thought to be better able to monitor the franchise granting processes and the rate settings by utilities – Thought to improve the availability and cost of financing by improving investor confidence in the viability of new electric enterprises – Favored by IOU’s to help them compete with the surge of new municipal systems (number tripled between 1896 and 1906) – Proposed and lobbied for by Sam Insull in 1898

8. Sec. 4 -REGULATED UTILITIES-State PUC’s PUC- Public Utility Commision- State Agency – Appointment of commissioners varies state to state (by state governor,mayors, legislature or popular vote) – Terms from six to eight years – State qualifications vary (usually experienced in utility matters, usually legal professionals – PUC’s are quasi-judicial and quasi-legislative entitites (no separation of power) Act as Administrator, Judge and Legislator

9. Sec. 4 -REGULATED UTILITIES-State PUC’s NARUC National Association of Regulatory Utility Commissioners – The governmental agencies that regulate utilities in all 50 states, District of Columbia, Puerto Rico and Virgin Islands are all members of NARUC – NARUC develops educational programs for member commissioners – Quasi-judicial government corporation – 16 Committees ( Some pertinent to electric- Critical Infrastructure, Global Climate Change, Consumer Affairs, Electricity, Energy resources and Environment, Gas, International Relations, Accounting/Finance, Electric Reliability….Nuclear Issues-Waste Disposal

10. Sec. 4 -REGULATED UTILITIES-Federal FEDERAL AGENCY and COMMISION DUTIES Formulate relevant rules and regulations Ensure implementation of rules and regulations Investigate and prosecute cases of violations Preside over disputes over rules and regulations – Feds have “last word”- rulings are valid, legal, and binding upon all parties – Issue NOPR (Notice of Proposed Rulemaking to industry for comment, then review comments before final judgment – Rules and regulations may be challenged in courts or filing petitions to reconsider

11. Sec. 4 -REGULATED UTILITIES-Federal DOE - Dept of Energy Secretary appointed by president DOE principal adviser to president for all energy policy DOE formulates energy policy and initiatives – Direct control and power over utilities via EIA Energy Information Administration mandates reports by utility and other generators and uses data to formulate DOE policy initiatives – DOE ‘s electric utility enforcement via ERA Economic Regulatory Administration – licenses imported electricity, oversees regional coordination and planning, enforcement of Power Plant Industrial Fuel Use Act (mandates new units to be able to use coal technology)

12. Sec. 4 -REGULATED UTILITIES-Federal FERC –Federal Energy Regulatory Commission Most influential agency affecting electric utilities – Independent regulatory within DOE Decisions are final ( Secretary of DOE cannot overrule) Only appeal is through US Court of Appeals – Created by Dept. of Energy Organization Act 1977 – Commissioners appointed by President with Senate approval for a term of 4 years – FERC has far reaching regulatory, permitting and monitoring functions

13. Sec. 4 -REGULATED UTILITIES-Federal FERC (cont) FERC functions Regulate wholesale electric sales Regulate merger activities between and among regulated utility and nonutility companies Issue licenses for nonfederal hydroelectric projects Issue maintenance permits for border transmission facilities Oversee electric utility stock transactions Monitor relationships of electric utility executives with companies doing business with utilities

14. Sec. 4 -REGULATED UTILITIES-Federal EPA- Environmental Protection Agency Created 1997 Members nominated by President- confirmed by Senate – Mission to protect and enhance environment in both present and future Conduct pertinent research in environmental matters Set specific environmental standards ex. Clean air emissions, clean water standards Monitor and enforce all its environmental standards

15. Sec. 4 -REGULATED UTILITIES-Federal NRC- Nuclear Regulatory Commission Est.1975- Succeeded Atomic Energy Commission Appointment by President- confirmed by Senate (5 yrs) – Electric Utility Industry impacted by 1.Licensing 2.Inspection and enforcement 3.Research and standard – Areas of NRC concern Safety of nuclear operations and materials Environmental impact of nuclear technology

16. Sec. 4 -REGULATED UTILITIES-Federal SEC - Securities and Exchange Commission Est 1933- to regulate transactions in corporate securities and stock exchanges Presidental nominations- 5 year terms – SEC affects Utilities – Disclosure of offerings of securities – Investigates and enforce sanctions in cases of securities fraud – Regulate security sales and purchases, utility properties and other assets held by registered public utility holding companies and subsidiaries – Regulate reorganizations, consolidations and mergers amongst utility holding companies – Require financial reports from anyone holding more than 10% of a holding company’s securities – Regulate security trading

17. Sec. 4 -REGULATED UTILITIES-Federal SEC (Cont) SEC regulated the dealings of electric utilities defined as registered holding companies under the Public Utility Holding Company Act (PUHCA-1935) PUHCA intent – Halt corruption and scandals in Electric Industry during Great Depression era – Protect consumers from business dealings that threatened reliability – Extend extensive regulation on the size, spread, business type and finances of holding companies owning and operating electric utility companies PUHCA reformed by EPAct’92 – repealed by EPAct’05

18. Sec. 4 -REGULATED UTILITIES-Federal OSHA- Occupations Health and Safety Act Works under auspices of DOE to ensure impartial and expert implementation of safety measures in the energy sector. (Est. 1970 under Dept of Labor) Main function is to ensure safe and healthy work conditions OSHA regulations affect electric utilities extensively due to the inherent danger found working with electricity and the mechanical/ physical forces present in work areas. – Examples: Personal Protective Equipment (hardhats, gloves, eye protection etc.– periodic testing of equipment— mandatory safety training for employees—lockout/tagout procedures—emergency work hour limitations—emergency medical response training—bucket rescue training

19. Sec. 4 -REGULATED UTILITIES-Federal DOI- Dept of the Interior EST 1849 to oversee Federal Lands – Two bureaus affect electric utilities BLM-Bureau of Land Management – When utility lines pass through federal lands the companies must abide by BLM regulations – BLM is principal agent for leasing federal land coal reserves FWS-U.S Fish and Wildlife Service – As much as possible utilities must operate their generating plants and transmission lines in such a way as to minimize impact on wildlife and habitat (often sponsor habitat areas near facilities)

20. Sec. 4 -REGULATED UTILITIES-Federal DOA- Dept of Agriculture – EST. 1862 –Includes U.S. Forest Service – When utility lines cross protected forest lands the utilities must comply with Forest Service regulation

21. Sec. 4 -REGULATED UTILITIES- Changes The electric industry’s quest to evolve in the competitive restructuring and reform area has resulted in a pronounced lessening of the tight regulatory grip on electric utilities that had previously defined the industry

22. Sec. 4 -REGULATED UTILITIES-Changes PUHCA (Reformed EPAct ‘92-Repealed EPAct ’05) EEI (Edison Electric Institute- Lobby for IOU’s) Maintains the PUHCA law of 1935 had the following negative effects – Restricted flow of capital into U.S energy markets and slowed new generation and transmission development – Limited number of suppliers in market by prohibiting exempt wholesale generators from selling directly to retail consumers – Acted as a barrier to the formation of regional independent transmission companies (ITCs) Public Citizen ( a public interest watchdog group) argues – PUHCA promoted economic growth and stability – Without it,the electric industry would become less transparent, less transparent and more prone to failure – Since certain regulatory exemptions to PUCHA allowed in 1992 EPAct there have been bankruptcies- Mirant, NRG, Enron, and NEG in addition to many generating plants being sold at “fire sale “ prices

23. Sec. 4 -REGULATED UTILITIES-Changes PURPA- Public Utilities Regulatory Policies Act – Enacted during energy crisis of 1970’s to reduce dependence on foreign oil and on fossil fuels Also goals to diversify generation technologies and cultivate conservation and efficient use of resources – With EPAct ‘05 conditions have been set into motion for PURPA’s repeal PURPA promoted cogeneration and renewable resources and other efficient technologies and introduced competition by demonstrating electric generation was not a natural monopoly PURPA allowed for QFs (Qualifying Facilities) to sell power to the grid. The Utility was mandated to buy this power at a price no greater than what it would cost to self produce

24. Sec. 4 -REGULATED UTILITIES-Changes PURPA (Cont.) EPAct ‘05 established conditions for eliminating PURPA’s mandatory purchase obligation and revised QF criteria PURPA PROS – No guarantee free market can sustain goals of cogeneration and renewables – Incentives must remain in place to conserve energy and use “greener” fuels – QF’s bring increases reliability and decrease need for large costly plants – PURPA levels playing field for non utility power producers – Sudden repeal is a piecemeal approach – repeal should be part of a comprehensive industry restructuring legislation

25. Sec. 4 -REGULATED UTILITIES-Changes PURPA (Cont.) PURPA CONS – Anticompetitive because of required purchase from QFs – 1992 EPAct has provisions for wholesale generators that render PURPA obsolete – Higher consumer prices because of long term QF contracts based on erroneous forecasts of high capital costs, demand increases and natural gas prices – Cogenerators and renewable energy sources have already gotten a foothold and do not need further promotion – Immediate repeal is necessary- it will take too long if contained in a comprehensive industry restructuring legislation

26. Sec. 4 -REGULATED UTILITIES-Changes Energy Policy Act of 1992 -EPAct ’92 – The turning point in Electric Utility Industry evolution – Major goal to loosen restrictions to competition Allowed public utility holding companies to diversify into areas like independent power production Revised PUHCA to allow a new class of power producer called EWGs- Exempt Wholesale Generators who could be owned by a utility, a utility holding company or a developer not necessarily connected to a utility Allowed EWG businesses to operate anywhere in US and also in foreign markets Requires utilities to allow wholesale generators access to transmission lines (wholesale wheeling) enforced by FERC