Introduction to Electric Pow

Regulation and Electricity Mar

J. Arnold Quinn

Director, Office of Energy Policy and Innova

Federal Energy Regulatory Commission

July 9, 2015
Obligatory Disclaimer

Any views expressed in this presentation 

own, and do not necessarily represen

views of the Federal Energy Regula

Commission or the United State

Government.
The Electric Power System
Generation of Electric Power

A Bit of History . . . 

 Early utility systems were localized, serving sma

of nearby customers

 Systems grew as technology improved and utilitie

greater economies of scale

 States first regulated electric utility service as a m

consumer protection (and investor preference)

 PUC of RI v. Attleboro Steam & Elec. Co. (1927)

 Held that Commerce Clause prohibited one state (RI) f

regulating the rate charged by its utility for sales of powin another state (MA). 

 Federal Power Act (FPA) (1935) fills the “Attlebo

(but preserves state role)
Electricity Regulation:

Who is Responsible for What?

 Federal Power Act Wholesale sales of electricity for 

resale in interstate commerce

 Transmission of electricity in 

interstate commerce

 (Very) Limited “backstop” 

transmission siting authority

 See 16 U.S.C. 

§ 824p

 Siting/Permitting of hydro plants

 Otherwise, no generation 

planning or siting control 

 Reliability of bulk power system

 State Public Utility A

 See, e.g., VA. CODE A

seq. and 56-576 et seqRegulation Act)

 Retail sales to end u Low-voltage distribu Siting of power plan

transmission lines

 See, e.g.,

M

D. CODE

A

COS. § 7-207 (transmi

 Resource planning; i

generation types (corenewable) used by a serve customers

Federal Regulation (FERC) State Regulation 
What is FERC?

 FERC is an Independent Regulatory Agency 

Executive Branch of the U.S. Government

 Created by Department of Energy Organizat

Act (1977)

 Five Commissioners, appointed by the Presi

and Confirmed by the Senate, serve staggereyear terms

 No more than three from a single political party President designates Chairman
Overview: What FERC Regulates in t

Electric, Natural Gas and Oil IndustrElectric Power Industry 

 Interstate transmission rates and services Wholesale electric energy rates and servic Corporate transactions, mergers, securitie

by public utilities

 Mandatory electric reliability standards fo

“bulk power system”

 Hydroelectric facilities; siting and licensi

(including environmental matters), safetyrecreational uses, etc. (Part I of the FederAct)
Natural Gas Industry

 Interstate transportation rates and service Interstate gas pipeline siting, construction

related environmental matters

Oil and Products Pipelines

 Interstate transportation rates and service

(common carrier regulation under the ICA

FERC Also Regulates Closely-RelateNatural Gas Industry and Oil Pipelin
What FERC Does NOT Regulate

 Planning or financing of generation inve Pollution produced by electric generator

(Environmental Protection Agency

)

 Pipeline safety (Department of Transpo Siting of electric transmission lines (exc

limited backstop)

 Siting of generating plants
FERC Jurisdiction 

 FPA Section 201 (16 U.S.C. § 824) grants FERC plen

jurisdiction over “the transmission of electric energy icommerce and . . . the sale of electric energy at wholeinterstate commerce”, including “all facilities for such transmission or sale of electric energy”. 16 U.S.C. § 8

 However, FERC jurisdiction “shall not apply to any o

electric energy,” and FERC “shall not have jurisdictiofacilities used for the generation of electric energy or facilities used in local distribution.” Id.
Transmission vs. Distribution

 FERC established a seven factor test to determine 

facilities are jurisdictional transmission or local d

1. local distribution facilities are normally in close proximity to 

customers 

2. local distribution facilities are primarily radial in character3. power flows into local distribution systems, and rarely, if eve4. when power enters a local distribution system, it is not recons

transported on to some other market

5. power entering a local distribution system is consumed in a c

restricted geographic area

6. meters are based at the transmission/local distribution interfac

flow into the local distribution system

7. local distribution systems will be of reduced voltage
Entities Subject to FERC Jurisd

 An entity that own or operate facilities used in transm

wholesale of electric energy in interstate commerce is utility” subject to FERC jurisdiction (16 U.S.C. § 824

 Federal, state and municipally-owned utilities and mo

cooperatives are excluded from definition of “public and thus not generally subject to FERC regulation (althey may be subject to specific FPA provisions) (16 U824(f)). Examples:

 Bonneville Power Administration, Tennessee Valley Autho Los Angeles Department of Water and Power Tri-State Generation and Transmission Cooperative
FPA Requirements for Public Uti

Rates and Services FPA Section 205 (16 U.S.C. § 824d)

 Requires that all rates and charges for the transmission or 

electric energy , and rules and regulations affecting or perthose rates (i.e., terms and conditions), must be “just and r

 Prohibits granting of “undue preference or advantage” in 

jurisdictional rates or terms and conditions of service

 Rates, charges, and terms and conditions must be filed wit

with 60 days notice.

 FPA Section 206 (16 U.S.C. § 824e)

 Authority of Commission, on its own motion or on compl

remedy rates or terms and conditions that it finds are “unjuunreasonable, unduly discriminatory or preferential”
FERC Rate Regulation

Wholesale Electricity – Almost entirely market-based 

 Analyze sellers for market power in defined products a

markets, utilizing screens that assess market share and seller to be “pivital supplier”

 RTO/ISO regions v. Non-RTO/ISO regions

Electric Transmission - Almost entirely cost of servic

 The “Cost of Service” is the amount needed to cover o

expenses, taxes, interest, return of investment, and a reof return on that investment

 Seeing increasing use of “negotiated” rates for new tra

facilities
Transmission Service Regulation 

“Open Access”

 Order Nos. 888/889 (1996)

 Open Access – Public utilities must provide non-discriminato

transmission service pursuant to an Open Access Transmissio(OATT)

 FERC’s pro forma OATT establishes minimum requirements f In short, public utilities must provide the same transmission se

that they provide to themselves

 Functional Unbundling – Public utilities were required to sep

transmission and generation or power marketing functions, anseparate rates for these functions

 Order Nos. 890 (2007) and 1000 (2011)

 Planning – Public utilities must participate in regional and int

transmission planning processes

 Cost Allocation - Processes must include transparent ex ante 

allocation methods that meet certain principles (e.g., “benefic
Reliability Standards

 FERC approves and enforces reliability standards to provi

reliable operation of the “bulk power system” (16 U.S.C. 

 Reliability standards are developed by the FERC-certified 

Reliability Organization” through industry stakeholder profiled with FERC; FERC may then either approve or remandoesn’t write the standards (although it can direct that a nebe developed).

 “Bulk power system” generally 100 kv and up, with certai

of critical facilities and exclusion of non-critical facilities used solely in distribution

 Reliability standards cover planning, operations, commun

physical and cyber protection, etc. Do NOT require constspecific facilities.
State PUC Regulation

 Extends to all other matters not addressed in FPA Retail rates paid by end-use customers Investments in distribution (including meters, poles, w Investments in generation resources and the mix of re

used to serve customers (e.g., RPS)

 States with restructured retail markets may have more limit

over generation investment

 Demand-side management and energy efficiency pro Siting of transmission lines* and power plants

* FERC has limited “backstop” siting authority in designated arcongestion where states have not acted on a siting application w* Local governments (counties) have this authority in some stat
Electricity Restructuring by St
Regional Transmission Organization/ 

Independent System Operators (RTOs/I

 Independent of market participants and transmission  Provide non-discriminatory access to transmission se

interconnection, etc.

 Operate and oversee multiple markets for capacity, en

ancillary services to facilitate competition among mu

 Energy markets: bid-based, security constrained economic d

locational marginal pricing

 Capacity markets: some RTOs/ISOs operate centralized ma

procure capacity to meet the region’s resource adequacy req

 Ancillary services: markets allow multiple sellers to provide 

services (frequency response, reserves, etc.)

 Market rules and tariffs developed through stakehold

then filed with FERC (no “one-size fits all” approach

 Generally more non-utility “merchant” generation

Current Jurisdictional Issues

 Demand Response in Wholesale Marke

 EPSA v. FERC at Supreme Court

 Resource Adequacy in RTO/ISO Regio

 RTO/ISO role in ensuring sufficient resources Participation of state-ordered generation in centr

capacity markets
“Bilateral” Markets

 Vertically-integrated utilities operating their own ba

authorities (BAs)

 Buyers and sellers contract at arms-length, with mos

market-based rates (some cost-based rates where selmarket power)

 FERC approves market-based rate authority before entity 

sales, and requires after the fact reporting of market-based 

 Cost-based rates filed at FERC prior to providing service

 Physical transmission service and generator intercon

service purchased from utilities under their filed OA

 State PUCs retain all authority for resource adequac

(through integrated resource planning and other tool

 Less prevalence of merchant generation Ancillary services typically provided by the utility i
Thanks!

Questions?

Arnie Quinn

(202) 502-8693

arnie.quinn@ferc.gov