USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner, Dennis W. Elsenbeck and Zachary R. Hirschfeld, 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 segment. The US legal system operates according to the concept of shared sovereignty: government power is gener- ally divided between state institutions and the federal government. Wholesale power markets and inter- state transmission systems are generally governed by federal regulation, while retail power markets and distribution systems are generally governed by state regulation. The contours of state and federal jurisdic- tion are increasingly being blurred with the advent of new technologies and policies, driven in large part by changes tied to increasing stresses from sharply rising demand and alternative energy and power. State Utility Commissions Individual state utility commissions are, generally, 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, afford- ability, environmental impacts, consumer protection, utility profitability and security. Federal laws and poli- cies governing the power sector are typically imple- mented by the states and layered with independently generated state laws and policies, all of which are dis- tilled and implemented by state utility commissions. There are generally two broad classes of utilities in the USA – private investor-owned utilities (IOUs) and pub- lic utilities. Within each class are three general types. Private IOUs include vertically 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 shareholder- owned entities that take on the functions of generat- ing, transmitting and distributing electricity to the cus- tomer, and operate within a defined service territory as a regulated monopoly. In restructured states, the generation function has been opened up to competi- tion. Restructured IOUs, therefore, operate primarily as transmission and distribution companies. In restructured states, a significant share of power is provided by merchant generators or others, as many IOUs were required or incentivised to sell off most of their generation portfolio. The final category of pri- vately owned utilities is competitive retailers that serve as commodity suppliers and brokers. Public utilities Public utilities are comprised of municipal utilities, co-operatives and uniquely structured miscellaneous entities. Municipal utilities are primarily distribution utilities that purchase wholesale power. Co-operatives are consumer-owned, non-profit entities that can be either distribution-focused businesses that serve member customers, or generation and transmission entities that serve distribution co-operatives. The final category 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 dis- trict. History Integrated IOUs and municipal utilities were the first to emerge in the late 1800s. As early utility competi- tion resulted in the construction of parallel redundant power lines and infrastructure, prices plummeted and many utilities became bankrupt. Those that remained were granted a defined geographical service terri- tory 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 enact- ed a series of economic measures to counteract the effects of the Great Depression (the “New Deal”),
392 CHAMBERS.COM
Powered by FlippingBook