Electricity & its regulations in America


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Electricity & its regulations in America

  1. 1. ELECTRICITY & ITSREGULATIONSPresented By:Rabia YousufBCOM-2511
  2. 2. Electricity consumption by Americansin 2002 3463 mwh with a delivered value of $249.6billion. 37% by Households 32% by commercial users 28% by industrial users
  3. 3. Electricity production by U.S in 2002 50.1% by coal 17.9% by natural gas 20.2% in nuclear units 6.6% as hydroelectricity 2.35% by wind & solar
  4. 4. Main Characteristics of Electricity Continuous operation by reserve power plants Centralized control to meet any changes in regionalconditions. Efficient duplication to facilitate emergency support,coordinated operations and power purchases and sales.
  5. 5. Role of Federal Energy RegulatoryCommission (FERC) FERC oversees ‘wholesale’ or ‘bulk’ transactions. It requires that wholesale prices be cost based. FERC accepts prices set by markets to meet standardsfor competition.
  6. 6. General Policy of FERC To expand the role of markets To decrease direct regulation subject to thelaw’s limits.
  7. 7. Electricity’s Ownership Structure in1998 66.1% of generating capacity was owned byCorporate utilities 10.7% by Governmental utilities 3.1% by cooperatives 11.9 by nonutility generators
  8. 8. Electricity Regulation from 1940sthrough 1960s Regulation function was well enough Retail competition was prohibited by states Industry grew more capital intensive Arrival of Nuclear generators that couldproduce cheap power
  9. 9. Electricity Regulation from 1970sthrough 1980s Oil prices rose higher Shortage of natural gas Technological progress slowed down Costs of existing plants raised Greater risk of unstable prices Regulatory uncertainty
  10. 10. Public Utility Regulatory Policy Act(PURPA) of 1978 Opened wholesale markets to non utilities Encouraged industrial generation from wasteheat ‘cogeneration’ Cogeneration led to larger nonutilityplants --- whose output was cheaper for utilitiesto purchase than to generate themselves
  11. 11. Electricity Regulation from 1980sthrough 1990s Regulators, consumers and utilities beganreconsidering markets New transmission and control technologiescame Inter utility exchanges grew faster than retailsales New gas-fired generators became as cheapas coal-fired plants
  12. 12. Energy Policy Act (EPAct) of 1992 Allowed transmission owners to carry powerfor other wholesale parties Nonutility generators could access any willingcounterparty Transmission access allowed municipalutilities to become independent
  13. 13. Electricity Regulation from 1990sonwards Utility purchases from non utilities grew morethan twice as fast as retail sales Retail customers still lacked choices Control technologies allowed reliable flowsover distances of one thousand miles Power marketers traded more than 1.5 billionin 1999
  14. 14. California Public Utilities Commission(CPUC) 1994 CPUC was the first to investigate choice for retailcustomers CPUC’s research staff blamed overregulation CPUC Proposed greater reliance on markets Competitive suppliers and many retail userswelcomed their proposal
  15. 15. Resistance against CPUCCalifornia’s three large corporate utilitiesresisted CPUC proposal claiming that: Competitive prices would not allow them torecover about $20 billion in PURPA contracts
  16. 16. Approval of Assembly Bill 1890 in 1996CPUC agreed to the utilities’ claim resulting in approval ofAssembly Bill 1890 by California’s legislature in 1996 This was an internally inconsistent compromise to ensure nondiscriminatory use of transmission Utilities had to divest in-state gas-fired generation Utilities had to purchase all powers from markets Risk management activities were prohibited It froze retail prices until 2002
  17. 17. Electricity Regulation from April 1998-2000 Supply and demand kept prices low to recoverstranded costs Natural gas supplies became limited and expensive Electricity became quite expensive Great Increase in the price of pollution permit
  18. 18. Electricity Regulation from April 1998-2000….continued Utilities faced insolvency as rising power costs metfrozen retail prices Short term energy prices were high FERC reluctantly capped short term prices and lostcreditworthiness California’s situation deteriorated badly in 2000
  19. 19. Electricity Regulation from 2001-2003 State government took over powerpurchasing Hydroelectric conditions improved Market prices fell to their pre-crisis levels Californian’s were locked into un-economicalcontracts whose costs must be allocated
  20. 20. Electricity Regulation from 2001-2003……continued State’s utilities tried to adopt previousmonopoly roles Fixed stranded cost payoffs were added toeveryone’s bills Customers were given access to marketsthat existed for years prior to reform
  21. 21. Electricity Regulation in 2004onwards 78% of the industrial power in New Jerseywas supplied by 30 non utility providers Utilities stopped supplying power to theindustrial users in New York New York state already had 33 non utilitysellers struggling for customers
  22. 22. ConclusionAccording to the case in discussion, USA isstill a long way from fully competitive marketsBUTEven the limited competition availableis producing considerable benefits
  23. 23. THANK YOU ALL