Key Facts About Electric Power Industry
Transcript of Key Facts About Electric Power Industry
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KEY FACTS
Electric Power
Industry
about
the
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The electric power industry is a $737-billionindustry that powers our economy and enhancesour everyday lives.
In our nations economy, the electric power industryrepresents 3 percent of real gross domestic product.
Americas shareholder-owned electric companiesemploy more than 500,000 workers.
Nearly 70 percent of industries, Americanbusinesses, and consumers are served byshareholder-owned electric companies.
continuesp
Know?Did You
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Demand for electricity is projected to increase31 percent by 2035 as the number of products
powered by electricity increases. Today, for example,76 percent of U.S. homes have at least one computer.
Fuel diversity is key to reliable and affordable elec-tricity. Electric companies use a variety of fuels to
generate electricity, and tend to use the fuels thatare most cost-effective and readily available intheir region.
Since 1990, electric companies have reduced emis-
sions of both nitrogen oxides (NOX) and sulfur dioxide(SO
2) by about 70 percent, while electricity use has
increased 38 percent.
The electric power industry is developing advanced
generation technologies to generate electricity morecleanly.
Know?
Did You
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In the United States, the electric power industryleads all other industrial sectors in reducing carbondioxide (CO
2) emissions.
Millions of Americans invest in the electric utilityindustry and rely on the modest, steady growth ofutility stocks to supplement their income.
The electric power industry is capital intensiveit is spending approximately $75 billion per year formajor transmission, distribution, and smart grid sys-tem upgrades; new, cleaner generation capacity; andenvironmental and energy-efficiency imp ovements.
Electric companies are investing in energy efficiencyand are promoting innovative options for makingenergy efficiency part of their busine s model.
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KEY FACTSElectric Power
Industry
KEY FACTSElectric Power
Industry
about
the
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Table o Contents:
Introduction 1
The Value of Electricity 2
A Closer Look at the Electric Power Industry 6
How the System Works 10
The Regulation of Shareholder-Owned
Electric Companies 18
Protecting the Environment 22
The Financial Side of the Electric Power Industry 24
Powering Americas Electric Future 26
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1 | Key Facts About The Electric Power Industry The Value of Electricity
Introduction
1
1 Edison Electric Institute,2010 Financial Review, June 2011. Industry size as measured by net property, plant, and equipment as of December 31, 2010.
The electric power industry is a $737-billion industry1 that provides a vitalservice to modern lie. Electricity helps to grow our economy and to improveour standard o living.
Americas shareholder-owned electric companies employ more than 500,000workers, pay billions o dollars in tax revenue, provide a variety o public ser-vice programs to benet the local communities they serve, and produce oneo our most valuable productselectricity. Not only is electricity the mostprevalent energy orm known, its versatility is unparalleled.
Today, electric companies are transorming the way they produce power anddeliver it to customers. These companies are utilizing new technologies thatempower customers to use electricity more wisely, which reduces the needor new generation. And, they are investing in control technologies to re-duce emissions at existing power plants, while building new acilities thatuse cleaner technologies.
Going orward, electricity will play an increasingly larger role in trans-orming our transportation sector, as a new generation o plug-in electricvehicles (PEVs) will help to reduce U.S. dependence on oreign oil and to cre-ate new, high-quality American jobs.
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ofValueThe
Electricity
Its hard to imagine what our lives
would be like without electricity.
Thats because we depend on elec-
tricity or nearly everything we do.
Since Thomas Edisons rst
power plant lit up 800 light bulbs
in New York City on the evening o
September 4, 1882, electricityhas become our most prevalent
energy orm. It drives our nations
economy and powers smart
technologies that enhance our
quality o lie.
of
2
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2 U.S. Department of Energy, Energy Information Administration,Residential Energy Consumption Survey, March 2011.
3 U.S. Department of Energy, Energy Information Administration,2011 Annual Energy Outlook, April 2011.
Electricity powers our homes, oces, andindustries; enables communications, entertain-ment, and medical services; powers computers,electric technologies, smart phones, and the
Internet; and runs various orms o transpor-tation. Electricity is the most fexible and mostcontrollable orm o energy.
Clearly, electricity is a crucial product we all
take or granted. We scarcely think about it, un-
less we dont have it. Today, our high-technology
society demands electricity to power nearly
all new products that come to market. In act,the share o electricity used by appliances and
consumer electronics in U.S. homes has nearly
doubled over the past three decades.2
While energy-eciency improvements have had
a major impact in meeting national electricity
needs relative to new supply, the demand or
electricity continues to increase. According tothe U.S. Department o Energys Energy Inor-
mation Administration (EIA), consumer demand
or electricity is projected to increase 31 percent
by 2035.3
Did You
Know?
99%o households have televisions
99% o households have rerigerators
82%o households have a clothes washer
79% o households have a clothes dryer
79% o households have DVD players
76%o households have at least one computer
61%o households have central air conditioning
59% o households have a dishwasher
50%o households have a DVR
Source: U.S. Department of Energy, Energy Information Administration
The typical U.S. home now has,on average, almost 25 electronicproducts99 percent o which
must be plugged in or recharged.
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4 | Key Facts About The Electric Power Industry
0
20
40
60
80
100
120
140
160
180
(Percent)
Health Care Natural
Gas
Gasoline
(regular)
Consumer
Price Index
Housing Food &
Beverages
Transportation Electricity
159%
139%
105%
68% 67% 67%60%
50%
Increase in cost of selectedconsumer goods1990-2010 (nominal dollars)
Sources: U.S. Department of Labor, Bureau of Labor Statistics (BLS), and U.S. Department of Energy, Energy Information Administration (EIA).
Changes In Electricity Prices Compared To Other Consumer Products
Electricity Prices RemainAn Excellent Value
While American homes use more electricity
today than ever, the portion o household bud-
gets dedicated to electricity bills actually has
declined. In act, the growth rate or electric-
ity prices is lower than other important goods.
Overall, the price o one kilowatt-hour o elec-
tricity (adjusted or infation) has increased at
a lower rate than other consumer goods like
gasoline, health care, housing, ood, and trans-portation.
The Industrys InvestmentIn Local Communities
In addition to providing reliable electricity to
our homes and businesses, Americas elec-
tric companies are solid supporters o local
economic development eorts in thousands o
communities across the nation. They contribute
to the growth, strength, and stability o these
communities by paying billions o dollars in taxes,
by employing more than 500,000 workers, and
by providing a variety o public service programsthat address the needs o the communities they
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Key Facts About The Electric Power Industry | 5
4 U.S. Energy Information Administration, data compiled from Electric Power Annual,1994 to 2009 editions.
serve. Electric companies also are the source o
revenue and employment or other businesses
in the community, as they depend on other com-
panies or goods and services ranging rom ad-
ministration to complex generating equipment.
Energy EfciencyPrograms Are MakingA Dierence
Electric companies are working with their cus-
tomers to use energy more eciently. They areutilizing new technologies that empower cus-
tomers to use energy more wisely, and they are
helping their customers reduce their electricity
usage and control their energy bills with energy-
eciency programs. These programs are mak-
ing a dierence.
Between 1989 and 2009, electric company energyeciency programs saved 1,083 billion kilowatt-
hours (kWh) o electricity. Thats enough elec-
tricity to power nearly 100 million average U.S.
homes or one year.4
Did You
Know?More than one-third o U.S.households now own a smartphone that must be chargedby electricity.
Source: Consumer Electronics Association
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6 | Key Facts About The Electric Power Industry A Closer Look At The Electric Power Industry
The electric power industry plays a
critical role in our society on many
levels. It advances the nations
economic growth and productivity;promotes business development
and expansion; and provides solid
employment opportunities to
American workers. It is a robust
and growing industry that contrib-utes to the progress and prosperity
o our nation.
Closer LookA
at theElectric Power Industry
6
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The electric power industry includes any entityproducing, selling, or distributing electricity.Today, nearly 70 percent o American industries,businesses, and consumers are served by the
nations roughly 200 shareholder-owned electriccompanies.
Shareholder-owned electric companies are
owned by millions o shareholders through
direct investments or indirectly through other
investments such as retirement unds, lie
insurance policies, or mutual unds. The rest o
the nations electricity customers are served by
electric cooperatives, government-owned utili-ties, and other energy service providers.
Key Facts About The Electric Power Industry | 7
Cooperatives
12.3%
Shareholder-Owned ElectricCompanies and Afliates
68.6%
Municipal Systems
11.2%
State Projects 0.9%
Energy Service Providers
3.7%
Political Subdivisions
2.6%
Electric Cooperatives
13.0%
Most Americans Are Served By Shareholder-Owned Electric Companies
Note: Federal Utilites serve
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There are several different types of electricpower suppliers, including:
Shareholder-owned electric companies,
which serve nearly 70 percent o all custom-ers, are tax-paying businesses that are highly
regulated at the ederal, state, and local lev-
els, and are nanced by the sale o stocks and
bonds to the general public.
These companies also include non-utility
generators, which generally produce elec-
tricity or their own purposes or to sell intothe wholesale market, but not directly to
individual retail customers (or end users).
Non-utility generators include cogenerators,
small power producers, independent power
producers, and merchant generators.
Electric cooperatives are private compa-
nies owned by their customer members; theyare eligible or subsidized nancing rom
the Rural Utilities Service (part o the U.S.
Department o Agriculture), and are generally
unregulated and exempt rom paying ederal
income taxes.
Government-owned electric utilities
include municipal systems, public powerdistricts, state projects, and ederal utili-
ties. Municipal utilities are owned by the
municipality in which they operate and
are nanced through municipal bonds. Fed-
erally owned utilities are involved in the
generation and/or transmission o electricity,
most o which is sold at wholesale prices to
local government-owned utilities and electric
cooperatives. Government-owned utilities
generally are unregulated.
Energy service providers include corpora-
tions, generators, brokers, utility generationsubsidiaries, or any other entity licensed to
sell electricity to retail or end-use electric
customers in a competitive market using the
transmission or distribution acilities o an
electric distribution company.
Did YouKnow?
On December 17, 1880,Thomas Edison ounded theEdison Electric IlluminatingCompany, which established therst shareholder-owned electric
company. The companys PearlStreet Station power plantbegan providing electricity toNew York City in 1882.
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Electric Company Customers By Class
Electricity Sales To Total Ultimate Customers
Residential 87.3% Commercial 12.2% Industrial 0.5%
Transportation
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Most U.S. electricity is produced by coal, nu-
clear power, or natural gas. Renewable energy
sourcessuch as hydropower, solar, wind,
geothermal, and biomassmake up a growing
percentage o the uel mix. Fuel oil is used invery small amounts and provides less than one
percent o all U.S. electricity.
The amount o power produced by these plants is
measured in megawatts (MW), with one MW rep-
resenting 1,000 kW. A 500-MW power plant pro-
vides enough electricity to serve nearly 342,000
residential customers.6
Electricity Is Measured inWatts
Electricity is measured in units o power called
watts. One watt is such a small amount o power,however, that the more commonly used mea-surement is the kilowatt (kW), representing 1,000watts. The higher the watt or kilowatt rating o aparticular electrical device, the more electricity itrequires.
The amount o electricity a power plant gener-
ates or a customer uses over a period o time
is measured in kilowatt-hours (kWh). Kilowatt-hours are determined by multiplying the num-
ber o watts required by the number o hours
o use, and then dividing by 1,000. For example,
i you use a 15-watt compact fuorescent light
bulb ve hours a day or 30 days, you have used
15 watts o power or 150 hours, or 2.25 kWh o
electrical energy. Although electricity use varieswidely depending on the season and the region
o the country, a typical household uses about
919 kWh o electricity a month.5
Producing Electricity inGenerating Plants
Electricity is produced by domestic uel sourcesin generating plants. Electric generators have
the ability to choose among a broad variety o
uel sources to produce electricity. The combina-
tion o energy sources used is reerred to as the
generation, or uel, mix. 30
Totals 15 Watts
o Power or
150 Hours or
2.25 Kilowatt-hours
One 15-Watt
Light Bulb
Used 5 Hours
Per Day...
For 30
Days...
5 EEI, Statistical Yearbook of the Electric Power Industry.6 Calculation is based on a coal, natural gas, or nuclear power plant operating
90 percent of the time.
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12 | Key Facts About The Electric Power Industry
How A Power Plant Works
In a ossil uel plant, the uelprimarily coal or
natural gasis burned in a boiler to turn water
into steam. (Fuel oil, another ossil uel, is usedto generate less than one percent o the nations
electricity.) Under high pressure, the steam turns
the blades o a turbine that spins a generator,
producing electricity. In a nuclear plant, steam is
produced by the controlled splitting o uranium
atoms in a process known as nuclear ssion.
In a hydroelectric power plant, moving water
provides the energy to turn the turbine blades.
With wind turbines, the fow o wind turns theturbine blades, which then turn an electric gen-
erator. With most solar power, sunlight is con-
verted into electricity through solar cells that
absorb the suns energy. Alternatively, the heat
rom the sun can be used to create steam, which
moves the turbine.
Steam
Steam
FuelSource
EmissionControlEquipment
Steam Turbine
Steam
Boiler
Water
CondensedWater
Generator(A magnet rotates insidestationary coils of copperto produce electromagneticcurrent)
Condensation
End Use
Spent FuelEmissions Electric Current
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Fuel Diversity Is Key
Americas electric companies rely on a variety
o domestic uels to generate electricity.
Fuel diversity helps to protect electric companiesand their customers rom contingencies such as
uel unavailability, uel price fuctuations,
and changes in regulatory practices that can
drive up the cost o a particular uel. Fuel
diversity also helps to ensure stability and
reliability in electricity supply and strengthens
national security.
Key Facts About The Electric Power Industry | 13
The electricity generation mix diers rom state
to state and region to region, depending on the
availability and cost o uels located there. Majorchanges in the generation mix can have economic
impacts, especially on a regional basis.
2010 National Fuel Mix
* Includes generation by agricultural waste, landfill gas recovery, municipal solidwaste, wood, geothermal, non-wood waste, wind, and solar.
** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchasedsteam, sulfur, and miscellaneous technologies.
Sources: U.S. Department of Energy, Energy Information Administration, PowerPlant Report (EIA-920), and Combined Heat and Power Plant Report (EIA-920); 2010preliminary data.
Natural Gas
23.8%
Hydro
6.1%
Non-Hydro Renewables*
4.1%
Fuel Oil 0.9%Other** 0.6%
Coal
44.9%Nuclear
19.6%
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14 | Key Facts About The Electric Power Industry
Building Advanced Generation Technologies
Nuclear: Nuclear power also will play an im-portant role in the industrys uture genera-
tion plans. The industry continues to increasethe capacity o existing nuclear plants, and
electric companies are ling a number o new
reactor license applications. Moving orward,
the ederal governments loan guarantee
program and search or a solution or the
management o spent uel will help to remove
some o the barriers to increasing nuclear
power.
Renewables: Renewable energy has grownrapidly over the past several years, and EIA
projects that renewables will continue to in-
crease their share o the nations generation
mixrom 10 percent in 2010 to 14 percent
in 2035. However, the development o renew-
ables recently has been slowed due to lownatural gas prices. Currently, 29 states and
the District o Columbia have renewable elec-
tricity standard (RES) mandates.
Going orward, the electric power industry
will continue to pursue renewable energy
resources, including solar and wind power.
Electric companies also are investing in waysto store electricity, including battery, fy-
wheel, and compressed air storage technolo-
gies. These storage technologies will help to
improve the easibility and cost-eectiveness
o variable renewable energy sources.
To meet our nations growing demand or elec-
tricity, electric companies will need to continue
to increase their baseload generationpowerthat is available around the clockwith readily
available uel sources. At the same time, the
electric power industry is meeting stricter en-
vironmental standards. The industry is develop-
ing and deploying a suite o advanced generating
technologies to achieve emissions reductions
and to mitigate the impact o uture price in-
creases or any one uel.
Coal: While utilities are closing many olderpower plants, coal will continue to serve as the
primary uel source or our nations electricity
mix because the United States has plentiul
supplies o coal within its borders. The industry
is beginning to invest in more advanced, cleaner
coal-plant technologies, including integratedgasication combined-cycle (IGCC), ultra-
supercritical, and circulating fuidized bed
plants. The industry also is exploring methods
or capturing and storing carbon dioxide (CO2),
although large-scale commercial deployment
o carbon capture and storage (CCS) technol-
ogy is still years away. Natural gas: The electric power industry is
increasingly relying upon natural gas as a vital
uel. Electric companies are building very
ecient combined-cycle natural gas-based
plants. And, new sources o natural gassuch
as shale gasare transorming the market or
this important uel source and are keeping
prices low.
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Meeting Customer Demand
Electricity must be produced when customers
need it. Because electricity cannot be stored
easily or economically, electric companies andother electricity suppliers must have enough
generation capacity available to meet maxi-
mum demand on their systems, whenever that
occurs. To ensure that there is enough elec-
tricity available to meet customer demand,
some power plants work around the clock.
Typically, companies use coal-based, hydro,
high-eciency natural gas, or nuclear plantsto provide this continuous baseload ser-
vice because they are less expensive to run or
prolonged periods and are designed specically
to do so.
Pumped storage hydro, natural gas, or, to a ar
lesser extent, oil-based units are usually the units
o choice or providing service or the hours o theday when demand hits its highest, or peak, levels.
These peaker units may be started and stopped
quickly, unlike coal- and nuclear-based plants.
Non-hydro renewable energy sources, such as
wind and solar, are variable technologies that
are not available at all times. As a result, vari-
able renewable resources must be backed upby generating acilities that can be better con-
trolled, such as natural gas plants.
The availability o renewable resources also varies
among regions; not all areas o the country have
abundant renewable energy resources. Moreover,
renewable resources oten are located in remote
areas. Moving this power to where it is neededrequires an adequate transmission system.
Delivering Electricity toCustomers
When electricity leaves a power plant, its voltage
is increased at a step-up substation near theplant. Next, the energy travels along a transmis-
sion line, which consists o heavy cables strung
between tall towers, to the point where it is
needed. Once there, the voltage is decreased or
stepped-down at another substation. Finally,
a distribution power line carries the electricity
until it reaches a home or business. Electricity
travels at nearly the speed o light, arriving ata destination at almost the same moment it is
produced.
Ensuring Electric Reliability
The North American electric system is com-
prised o a complex interconnected network o
generating plants, transmission lines, and dis-
tribution acilities. Electric companies have in-
terconnected their transmission systems so that
they may buy and sell power rom each other
and rom other power suppliers, and to ensure
reliability o service.
Transmission lines link the generators o
electricity to the distributors, transporting
electricity to local electric companies, which in
turn deliver it to customers. Redundancy is built
into the transmission system to provide electric
companies with alternative power paths in
emergencies and to allow them to buy and
sell power rom each other and rom other
power suppliers.
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Getting Electricity Where It Is Needed
When electricity leaves a power plant
(1), its voltage is increased at a
step-up substation (2).
Next, the energy travels along a
transmission line to the area where the
power is needed (3).
Once there,the voltage is decreased or
stepped-down, at another substation(4).
Finally, a distribution power line (5)
carries the electricity until it reaches a
home or business (6).
1)
2)
3)
4)
6)
5)
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Key Facts About The Electric Power Industry | 17
Did You
Know?The North American Electric Reli-ability Corporation oversees eightregional reliability entities and isresponsible or establishing and
enorcing mandatory reliabilitystandards or the power grid.
These transmission lines are divided into three
regional grids: one in the East that connects the
Eastern seaboard and the Plains states and Ca-
nadian provinces; another in the West that con-
nects the Pacic coast and the Mountain statesand Canadian provinces; and another that op-
erates in most o Texas. There are very limited
connections between the three grids to help
minimize the impact o disruptions to the system.
The structure o the grid makes reliability pos-
sible, but what makes it a reality is the coordina-
tion in operations o the electric companies thatmake up this network. For the electric power
grid to work smoothly and without disruption, a
transmission operator must be aware not only o
the power fowing over its own system created
by its own generators and the electricity demand
o its customers, but it also must be aware o the
transers o electricity between other systems
and how those transers might fow through its
own system.
To coordinate power fow, control areas have
been ormed. Control areas consisting o one
or several transmission operators ensure that
there is always a balance between electricity
generation and the amount o electricity needed
at any given moment to meet demand. A margino capacity beyond the actual load is needed to
ensure reliability at times o peak demand and
to provide or maintenance down times. Opera-
tors use computerized systems to exercise min-
ute-by-minute control over the network and to
ensure that power transers occur during speci-
ed times in pre-arranged amounts.
R l tiThe
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18 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies
Shareholder-owned electric
companies are highly regulated
at the ederal and state levels.
RegulationShareholder-Owned
Electric Companies
The
of
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Although the electric power industry is a diverseone with thousands o suppliers, not all o themare regulated in the same way. Prices chargedby some suppliers, such as shareholder-owned
electric companies, are highly regulated at theederal and state levels; other suppliers, suchas electric cooperatives and government-ownedutilities, are not subject to the same regulatoryrate requirements.
State Regulations
Shareholder-owned electric companies are
regulated by state agencies, typically known as
Public Utility Commissions or Public Service
Commissions. All states regulate rates or the
delivery o electricity to end users (customers)
through distribution wires and related systems.
How the price or electricity is set, however, var-
ies by state.
In the majority o states, rates or electricity
are determined by state regulators using a pro-
cess called cost-o-service ratemaking. This
has been the traditional model governing elec-
tric rates or many decades. However, in the 16
states and the District o Columbia where retail
electric competition programs are in place, the
price or the generation portion o customers billsis set in the competitive market. (Again, in these
states, the local distribution portions o custom-
ers bills are still governed by state regulators.)
Electric companies also are subject to environ-
mental regulations issued by individual states.
And, states have the primary role in approving
the siting o company acilities, including trans-mission acilities that may serve many dierent
states.
Federal Regulations
Shareholder-owned electric companies are also
highly regulated by ederal agencies.
The Federal Power Act (FPA) and the FederalEnergy Regulatory Commission (FERC)
The FPA, enacted in 1935, is the primary ed-
eral law that regulates the shareholder-owned
segment o the electric power industry. The
FPA created the Federal Power Commission
(FPC), which ensured that electricity rates werereasonable, nondiscriminatory, and just to the
consumer. In 1970, the FPCs unctions were
transerred to FERC and the newly created De-
partment o Energy.
Today, FERC regulates the transmission and
sale o electricity in interstate wholesale elec-
tricity markets; utility sales o assets; mergersand acquisitions; and interconnections o cer-
tain acilities. FERC also provides oversight o
grid reliability.
Additionally, FERC regulates interstate trans-
mission and interstate wholesale power transac-
tions, which involve shareholder-owned electric
companies buying or selling electricity rom one
another or rom other power suppliers or resale
to the ultimate customer. FERC has the authority
to regulate the prices, terms, and conditions o
these wholesale power sales and transmission
services. FERC reviews certain mergers and
acquisitions and corporate transactions by
shareholder-owned electric companies.
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20 | Key Facts About The Electric Power Industry
FERC also reviews the siting applications or
electric transmission projects under limited
circumstances; licenses and inspects private,
municipal, and state hydroelectric projects;
monitors and investigates energy markets orpossible market manipulation; enorces FERC
regulatory requirements through imposition o
civil penalties and other means; and adminis-
ters accounting and nancial reporting regula-
tions and conduct o regulated companies.
FERC helps to protect the reliability o the high-
voltage interstate transmission system with over-sight authority or mandatory electric reliability
standards, which include cyber security. In 2006,
FERC certied the North American Electric Re-
liability Corporation (NERC) as the Electric Reli-
ability Organizationan independent, sel-reg-
ulating entity created by Congress that enorces
reliability standards.
In 2008, FERC conditionally approved the in-
dustrys rst mandatory cyber security stan-
dards. The standards require users, owners,
and operators o the nations electricity grid to
implement training, physical security, and asset
recovery plans to protect against the threat o
cyber attack. Today, utilities are working to en-
sure that orthcoming cyber security regulationswill promote reliable and cost-eective service.
FERC also has encouraged the ormation o re-
gional transmission organizations (RTOs) and
Independent System Operators (ISOs) to oversee
electricity markets. These organizations help
to run the transmission grid on a regional ba-
sis. There are currently seven RTO/ISO regionsacross the United States.
While FERC has primary jurisdiction over rates
or transmission and interstate wholesale trans-
action by shareholder-owned electric com-
panies, the agency has only very limited juris-
diction over government-owned utilities andelectric cooperatives.
Additional Federal Regulations
The electric power industry must comply with
literally hundreds o environmental regulations,
including dozens o rules created under the ed-
eral Clean Air Act and Clean Water Act. The U.S.Environmental Protection Agency (EPA) has pri-
mary responsibility or developing and enorcing
most ederal environmental regulations. Other
ederal agencies have broad authority over
electric company acilities crossing ederal
lands or aecting unique interests, such as
historical sites or endangered species.
Electric companies also are regulated by the
Federal Communications Commission. Electric
companies are required to allow telecommuni-
cations companies to use electric poles or wires
and other acilities supporting wireless, ber,
broadband, and other communications systems.
The structural integrity, saety, security, and
reliability o utility poles are undamentalcomponents o the nations critical energy
inrastructureand the cost to companies or
maintaining these poles is considerable.
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The shareholder-owned segment o the elec-
tric power industry also must comply with the
many ederal regulations that apply to all U.S.
businesses. These regulations include nan-
cial and accounting requirements rom theSecurities and Exchange Commission and
Commodity Futures Trading Commission; and
anti-trust regulations rom the Department o
Justice and Federal Trade Commission.
Did You
Know?In the 1890s, electric companiesbegan to develop in urbanareas because o economies oscale. By 1907, New York and
Wisconsin began to regulatethese companies. Regulationspread to two-thirds o thestates by 1920, and todayelectric companies areregulated in all 50 states.
Key Facts About The Electric Power Industry 21
P otecti
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22 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies
To generate the electricity we
need, electric companies must
harness the Earths natural
resources. Recognizing that their
operations can have impacts on
the environment, electric companies
work diligently to use resources
eciently as they meet the ever-
growing demands or power.
And, they are always searching
or new and innovative ways to
generate electricityand to use it
wiselywhile also protecting the
environment.
Protecting
Environment
the
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Electric companies work hard to protect theenvironment o the communities in which theyoperate. Electric companies spend billions odollars each year on environmental practices,technologies, and operational measures toprotect human health and the environment.As a result, Americas electric generationfeetincluding coal-based power plants thattoday produce nearly 45 percent o the nationselectricityhas become increasingly cleaner overthe last two decades, and will continue to do so.
Likewise, air quality in the United States has
improved dramatically in recent years. In act,since 1990, electric companies have reducedemissions o both NO
Xand SO
2by about 70 per-
cent, while electricity demand has grown by 38percent.
The electric power industry also is working to
reduce CO2
and other greenhouse gas (GHG)
emissions. In the United States, the electric
power industry leads all other industrial sectors
in reducing CO2
emissions. To make signicant
GHG reductions in the uture, the electric power
industry will rely upon a ull suite o environ-
mentally riendly technologies. In addition toadvanced generation technologies, the industry
will utilize energy eciency technologies; mod-
ernize the power grid; and support the deploy-
ment o PEVs.
EPA is proposing a signicant number o rules
that will aect the industrys existing generating
feet over the next several years, as well as elec-tric companies uture plans or meeting electricity
demand. These rules likely will require addi-
tional reductions in NOX, SO
2, mercury, and other
emissions. Going orward, the industry is strongly
committed to urther emissions reductions and to
continued cost-eective environmental protec-
tion as an integral part o generating electricity.
1990 represents the base year. Graph depicts increases or decreases from the base year.
Source: U.S. Department of Energy, Energy Information Administration (EIA).
Utilities Have Substantially Reduced Air EmissionsWhile Increasing Electricity Production
20
40
60
80
100
120
140160
180
200 Index 1990 = 100
Real GDP h65%
Electricity Use h38%
NOX Emissions i68%
SO2 Emissions i67%
1
990
2
010
1
991
1
992
1
993
1
994
1
995
1
996
1
997
1
998
1
999
2
000
2
001
2
002
2
003
2
004
2
005
2
006
2
007
2
008
2
009
Key Facts About The Electric Power Industry | 23
Financial SideThe
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24 | Key Facts About The Electric Power Industry The Financial Side of the Electric Power Industry
Financial SideTheof the
Electric Power Industry
From a nancial perspective, the
shareholder-owned sector o the
electric power industry is vastly
dierent rom electric coopera-
tives and government-owned utili-
ties because it relies more heavily
on the private sector or invest-
ment capital needed to nance its
operations.
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In 2010, the electric power industry produced$372 billion in revenue rom sales to ultimatecustomers.7 In our nations economy, the elec-tric power industry represents three percent oreal gross domestic product (GDP).
However, customer revenues alone cannot
nance all the plants, acilities, and equipment
needed to provide electric service. Electric com-
panies raise additional money by issuing stock
and selling debt securities. This nancing, called
capitalization, takes three orms: long-term
debt, common stock, and a very small amount o
preerred stock (less than one percent). Electric
companies attempt to implement an appropriate
balance o debt (bonds) and equity (stock) that
matches the risk prole o their investors.
From an investment perspective, millions o
Americans traditionally have relied on the mod-
est, steady growth o utility stocks to supple-
ment their income. Most utility shareholders are
50 years old or older and earn $100,000 or less
annually.8 Investors in electric companies greatly
benetted rom the Jobs and Growth Tax Recon-
ciliation Act o 2003, which temporarily reduced
to 15 percent the maximum tax rate on dividend
income. Congress extended the reduced tax rate
in 2006 and again in 2010. The reduced tax rateis now eective through 2012.
Lower dividend tax rates make dividend-paying
stocks more attractive to investors. This helps
to lower companies cost o capitali.e., ewer
new shares o stock need to be issued to raise
the same o amount o new capital. By attract-
ing new investment in utility shares, electriccompanies are able to raise the capital needed
or major transmission, distribution, and smart
grid system upgrades; new, cleaner generat-
ing capacity; and environmental and energy-
eciency improvements. Looking orward, the
industrys capital expenditures are orecasted to
be approximately $80 billion to $85 billion per
year, or double their 2004 level. These invest-
ments will help to ensure a reliable supply o
electricity to customers and continued environ-mental improvements in the uture. And, these
capital improvement programs oer an impor-
tant source o much-needed, high-quality job
creation in many states.
Shareholder-owned electric companies also
contribute substantially to the nations tax base
through ederal, state, and other local taxes, suchas property taxes. For the year ended December
31, 2010, shareholder-owned electric companies
incurred a total o $31.7 billion in taxes.
7 Unless otherwise noted, all financial data in this section comes from EEIs2010 Financial Review.
8 Ernst & Young, The Beneficiaries of the Dividend Tax Rate Reduction, Prepared
for the Edison Electric Institute and the American Gas Association,January 2010.
Key Facts About The Electric Power Industry | 25
Did You
Know?The electric power industry isamong the most capital-intensiveindustries in the world.
P i A i
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26 | Key Facts About The Electric Power Industry Powering Americas Electric Future
The electric power industry is
working to transorm the way
that people think about and use
electricity. Everything the industry
is doing todayrom building
a cleaner generation feet to
modernizing the grid to advancing
electric transportation in all
ormsis setting the stage to
ensure that America has the elec-
tricity it needs to power its uture.
Powering Americas
Electric Future
26
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The great challenge acing the electric power in-dustry is the need to supply aordable, reliable,and environmentally sustainable electricity to acountry that is growing in both population andstandard o living. To meet this challenge, theindustry is transorming how electric companiesgenerate and deliver electricity, and how cus-tomers use it. The industry also is committedto training a new generation o workers to helpmeet our nations uture energy needs.
Enhancing Energy Efciency
Electric companies have a long and successultrack record o working with their customers
on ways to reduce their electricity usage and to
control their energy bills with energy-eciency
programs. Today, electric companies are pro-
moting a variety o innovative business and reg-
ulatory approaches that will encourage the use
o state-o-the-art eciency technologies andservices. They also are pursuing a wide range
o opportunities to improve energy eciency
such as improving the eciency o buildings
and appliances, accelerating the development
o advanced metering inrastructure and smart
meters, advancing more ecient distribution
transormers, and encouraging the develop-
ment o PEVs.
While it is necessary to add signicant new gen-
erating capacity in order to meet the demands
o the economy and a growing population, en-
ergy eciency can help to oset some o that
demand. In many ways, energy eciency can
be considered another uel. However, state
regulations generally compensate electric com-
panies based on electricity sales. To truly trans-
orm the role o energy eciency in the UnitedStates, new business models that consider
energy eciency as a resource are needed.
Modernizing the Grid
The electric power industry is modernizing the
nations electric grid by incorporating telecom-
munications and inormation technology in-rastructure into utility operations. These new
capabilities will provide electric companies and
customers greater control over electricity use.
By modernizing the grid, the industry is creat-
ing a platorm or new technologies to increase
system reliability and eciency. This modern-
ized grid will provide electric companies with a
nearly real-time situational awareness capabil-
ity, which will increase the industrys resiliency
against physical and cyber attacks.
This new inrastructure platorm will provide
important benets to customers, including
signicant opportunities or energy savings
and a variety o potential new services. For
example, smart meters measure electricity us-
age ar more requently than traditional meters
and can send data to and rom electric compa-
nies and their customers.
Key Facts About The Electric Power Industry | 27
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Electric Transportation
Electricity is a domestically produced transpor-
tation uel that will transorm our nations trans-
portation sector. PEVs will help our country to
reduce its dependence on oreign oil; to create
new, high-quality American jobs; and to enter
an era o clean transportation. The rst round
o PEVs began arriving in several U.S. markets
at the end o 2010, and the rollout will continue
over the next ew years.
PEVs are plugged in to the existing electricity
system using a 120-volt (V) or 220V/240V outlet
to recharge the car battery. (A 120V-outlet is a
standard household outlet, while a 220V/240V-
outlet is similar to an outlet used or a clothes
dryer.) Owners can recharge their batteries
overnight, using lower-cost, o-peak electricity.
Under this scenario, charging a PEV is compa-
rable to paying $1.00 per gallon or gasoline.The electric power industry is committed to
advancing PEVs and to utilizing electricity as a
transportation uel. The industry is helping to
address the inrastructure needed or widescale
deployment o PEVs, such as the charging op-
tions in homes, businesses, and public areas.
Modernizing our nations electric grid is a keycomponent or large-scale commercialization o
PEVs. Smart grid technology will help PEV own-
ers choose the best time o day to charge their
vehicles and optimize the benets o PEVs.
Training a New Generationo Utility Workers
The electric power industry is ocused on
building a skilled workorce to help meet ournations uture energy needs. EIA projects that
our countrys demand or electricity will increase
31 percent by 2035. To meet this demandand
to account or the projected retirements in the
industryelectric companies will need to hire
skilled workers throughout the country. And,
as the industry utilizes emerging energy tech-
nologies, electric companies are committedto helping workers learn necessary new skills
and advance in their careers. From line work-
ers to customer service operators to electrical
engineers, the electric power industry provides
much-needed, high-quality job opportunities
throughout the country.
28 | Key Facts About The Electric Power Industry
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29 | Key Facts About The Electric Power Industry Powering Americas Electric Future
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701 Pennsylvania Ave., N.W. | Washington, D.C. 20004-2696 | 202.508.5000 | www.eei.org
The Edison Electric Institute (EEI) is the association o U.S.shareholder-owned electric companies. Our members serve95 percent o the ultimate customers in the shareholder-
owned segment o the industry, and represent approximately70 percent o the U.S. electric power industry. We alsohave as Aliate members more than 80 International elec-tric companies, and as Associate members more than 200industry suppliers and related organizations.
Organized in 1933, EEI works closely with all o its mem-bers, representing their interests and advocating equitablepolicies in legislative and regulatory arenas.
EEI provides public policy leadership, critical industry data,strategic business intelligence, one-o-a-kind conerencesand orums, and top-notch products and services.
For more inormation, visit our Web site at www.eei.org.
October 2011