Historical Context of Energy Regulation: What is energy? How have humans harnessed energy for their own use? How and why do governments intervene in the market to control the use and development of energy resources?

What is energy? From where do humans get useable energy? Energy = the ability to do work

PATH OF ENERGY SUN  Solar energy  EARTH’S SURFACE Ocean absorption: heat and convection currents Land absorption: heat absorbed by animals, plants, etc. Energy is stored in “stocks” of energy resources, like combustible (fossil, biomass) fuels (Btu), water power, etc.

1 st & 2 nd LAWS OF THERMODYNAMICS FIRST LAW OF THERMODYNAMICS: “Energy can neither be created nor destroyed, only converted from one form to another.” SECOND LAW OF THERMODYNAMICS: “As energy is converted from one form to another, the availability of energy (and the useable amount) decreases.” (a/k/a the law of “entropy”).

ENERGY FORMS/CONVERSIONS GRAVITATIONAL MECHANICAL ELECTRICAL THERMAL CHEMICAL NUCLEAR

1.HYDRO (falling water) or WIND 2.COAL, OIL, NATURAL GAS, WOOD, BIOMASS, etc. 3.URANIUM 4.SOLAR USEFUL ENERGY PRIMARY SOURCEUSE Mechanical energy for industrial use (e.g., mills) or to run electricity-generating turbines Combustion to produce useable heat or to generate electricity Controlled atomic reaction releases heat to produce electricity Passive solar heat used directly; or converted chemically (active solar) to electricity (by photovoltaic cells).

1700s first use of hydromechanical power 1859Edwin Drake struck oil in western Pennsylvania 1865First natural gas utility opened in Fredonia, NY 1882Edison’s Pearl St. Station power plant opened Late 1800sFirst hydroelectric stations 1880s Rise of state utility commissions; passage of federal major antitrust legislation 1930s Federal Power Act; Rural Electrification Act; Public Utilities Holding Co. Act U.S. Energy Timeline

Source: EIA

SOURCE=EIA

Electric Generation Fuel Sources, Worldwide Source: IEA Key World Energy Statistics 2001

Share of U.S. Net Summer Electric Generating Capacity by Energy Source, Year-End 1999 (EIA)

Electricity Generating Capacity by Industry Sector and Ownership, as of January 1, 1999 (Source=EIA)

Extraction of primary source fuels Commercial or residential end use Transformation into electricity Regulate competition Regulate externalities

ENERGY LAW addresses the development, distribution and sale of energy resources. externalities of energy production pollution safety and health risks (workers) regulation of competition public utility law state ownership antitrust/competition law

1.HYDRO 2.WIND 3.COMBUSTION (COAL, OIL, NATURAL GAS, WOOD, BIOMASS, etc.) 4.URANIUM 5.SOLAR 6.TRANSMISSION EXTERNALITIES  Aquatic/terrestrial habitat destruction; aesthetic  Primarily aesthetic  COMBUSTION: Air pollution (SO2, NOx, global warming); Water pollution; aesthetic impacts EXTRACTION: habitat destruction; aesthetic; water pollution  EXTRACTION: water pollution; habitat destruction; aesthetic. USE: nuclear waste  aesthetic; waste production (photovoltaic cells)  aesthetic; EMR?

POSSIBLE LEGAL RESPONSES TO EXTERNALITIES 1.PIGOVIAN TAXES: tax creator of externality an amount that maximizes “social net benefit” 2.REGULATION: Prescriptive and proscriptive rules e.g., licensing statutes allow regulatory agencies to impose conditions to minimize/”internalize” externalities 3.STATE OWNERSHIP 4.PRIVATE LAW (TORTS)

1.HYDRO (falling water) or WIND 2.COAL, OIL, NATURAL GAS, WOOD, BIOMASS, METHANE 3.URANIUM 4.SOLAR EXTERNALITY REGULATION: JURISDICTION (U.S.) LOCAL GOVERNMENT (zoning) HYDRO: FERC & STATES, subject to preemption limits WIND: LOCAL GOVERNMENT Extraction of fuels: DOI and states, subject to preemption Combustion: EPA and STATES NRC with limited STATE jurisdiction State ownership is norm elsewhere Other nations: state may owns/supply energy resources, and regulate externalities

Multiple Jurisdictions and Preemption Allocation of Powers in Federal System –PUCs, controlling natural resources Federal Supremacy Barriers to commerce –Hydro, Energy Transactions

Menu of options for addressing the dangers of monopoly and unfair competition: manage private competition ex post (antitrust law) manage private competition ex ante (public utility/common carrier rules) state ownership