USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner and Dennis W. Elsenbeck, Phillips Lytle LLP
egory of public utilities includes those that are the product of a state and/or federal statute to provide utility services and/or generation to a particular district. History Integrated IOUs and municipal utilities were the first to emerge in the late 1800s. As early utility competition resulted in the construction of par- allel redundant power lines and infrastructure, prices plummeted and many utilities became bankrupt. Those that remained were granted a defined geographical service territory in which they could operate as a monopoly, in exchange for government regulation under what is known as the “regulatory compact”. In the 1930s, President Franklin D Roosevelt enacted a series of economic measures to counteract the effects of the Great Depression (the “New Deal”), which included, among other things, passage of the Federal Power Act of 1935 (FPA), the Rural Electrification Act of 1936 (REA), and the creation of certain federally authorised public utilities. The FPA established jurisdictional boundaries between the federal government, which regulates wholesale sales and interstate transmission, and the states, which exercise authority through state utility commissions that oversee retail sales and distribution infrastruc- ture. To promote electrification of underserved rural areas, the REA provided funding to a new class of utility – publicly owned co-operatives. Regulations The Public Utilities Regulatory Power Act of 1978 (PURPA), created in response to the 1970s’ energy crisis, encouraged conservation and cre- ated a market for non-utility power producers by requiring utilities, in certain circumstances, to purchase power generated by qualifying facili- ties (QFs). PURPA was implemented by each
state, resulting in a range of regulatory regimes across the country. PURPA paved the way for a series of Federal Energy Regulatory Commis- sion (FERC) orders that promoted open access to transmission facilities. Beginning in the 1990s, a number of states further deregulated the verti- cally integrated utility sector such that over 16 states and the District of Columbia now have some level of active retail choice programmes. The Energy Policy Act of 2005 (the “EPAct”) represents one of the most significant pieces of federal legislation in the energy sector since the New Deal. It grants FERC enhanced authority to: • prevent market manipulation and abuse; • assess extraordinary civil penalties; • approve siting of major transmission projects; and • implement reliability standards. A number of initiatives are under way at both the federal and state levels to facilitate the develop- ment of alternative power generation as well as to deal with the demands brought on by increas- ing electrification of economies in response to climate change. At present, at the federal level, aggressive steps are under way (and subject to ongoing legal challenges) to greatly reduce the scope of federal involvement in these initiatives; this increases the role and importance of a num- ber of states in this regard. 1.2 Principal State-Owned or Investor- Owned Entities The US electricity industry is comprised of over 3,000 electricity providers, which include over 2,000 publicly owned utilities, over 800 co- operatives, nearly 200 IOUs and over 200 power marketers.
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