USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner and Dennis W. Elsenbeck, Phillips Lytle LLP
1. Structure and Ownership of the Power Industry 1.1 Law Governing the Structure and Ownership of the Power Industry Today, the US power industry is comprised of four main segments: • generation; • storage/demand management; • transmission; and • distribution. No single entity sets the policy for each seg- ment. The US legal system operates according to the concept of shared sovereignty: govern- ment power is generally divided between state institutions and the federal government. Whole- sale power markets and interstate transmission systems are generally governed by federal regu- lation, while retail power markets and distribu- tion systems are generally governed by state regulation. The contours of state and federal jurisdiction are increasingly being blurred with the advent of new technologies and policies, driven in large part by changes tied to alterna- tive energy and power. State Utility Commissions Individual state utility commissions are, gener- ally, the collective architects of the US power sector. They are each uniquely structured, but are generally comprised of between three and seven members, who may be elected or appointed, with authority granted by either the state legislature or state constitution to balance policies and preferences related to reliability, affordability, environmental impacts, consumer protection, utility profitability and security. Fed- eral laws and policies governing the power sec- tor are typically implemented by the states and layered with independently generated state laws
and policies, all of which are distilled and imple- mented by state utility commissions. There are generally two broad classes of utili- ties in the USA – private investor-owned utilities (IOUs) and public utilities. Within each class are three general types. Private IOUs include ver- tically integrated (ie, bundled), restructured (ie, unbundled) and retail. Public utilities include municipal, co-operative and miscellaneous. Each class and type has a unique historical structure and legal framework. Private IOUs Vertically integrated IOUs are for-profit share- holder-owned entities that take on the functions of generating, transmitting and distributing electricity to the customer, and operate within a defined service territory as a regulated monopo- ly. In restructured states, the generation function has been opened up to competition. Restruc- tured IOUs, therefore, operate primarily as trans- mission and distribution companies. In restructured states, a significant share of power is provided by merchant generators, as many IOUs were required or incentivised to sell off most of their generation portfolio. The final category of privately owned utilities is competi- tive retailers that serve as commodity suppliers and brokers. Public utilities Public utilities are comprised of municipal utili- ties, co-operatives and uniquely structured mis- cellaneous entities. Municipal utilities are primar- ily distribution utilities that purchase wholesale power. Co-operatives are consumer-owned, non-profit entities that can be either distribution- focused businesses that serve member custom- ers, or generation and transmission entities that serve distribution co-operatives. The final cat-
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