Energy Law

8 – Electric Power

Fall 2014October 21, 2014

Alan Palmiter

Not for distribution- for study purposes only

Topic roadmap1. Electric power sector

– History of electricity – How “the grid” works

2. Generation, transmission and consumption of electricity– Traditional / renewable generation– Transmission of electricity– Electricity distribution

3. Regulation - electric power system– Generation (state v. federal jurisdiction)– Transmission– Distribution– Public utility regulation and deregulation

4. Future of electric power system– Regulatory coordination– “The smart grid”

http://www.eia.gov/totalenergy/data/annual/pecss_diagram.cfm

1. The electric power sector

1600 19001875 20001850

Electricity - timeline

Alexander Graham Bell –

invesnts t

elephone (1875)

Development of in

terstate tra

ns. (1890s)

First p

ower plant (1

882)

Thomas Ediso

n – invents l

ight bulb (1

877)

William Gilb

ert – stu

dy electr

icity (

1600)

Benjamin Franklin – ke

y attached to

kite (1

752)

Nikola Te

sla – invents A

C curre

nt (1887)

2nd In

dustrial R

evolution

New York

PUC (1907)

US electrification

(Click for video – 3.47 )

How the Modern Grid Works

1. True or false? Most electric power in the United States is generated from natural gas.

2. Which is true – a. Electricity can be stored by

power plants for later use.b. Distribution and long-

distance transmission lines operate at the same voltage.

c. A home uses electricity at a higher voltage than the voltage used for transmission.

d. Electricity must pass through a transformer to go from long-distance transmission to distribution lines.

3. Which is false -a. The majority of electricity today

comes from a thermal power plant of some type.

b. Only negligible electricity is lost during transmission.

c. The majority of electricity today is generated from a steam engine of some type.

d. Power supply must be continuously matched with power demand.

4. The second industrial revolution was made possible by the expanded use of electricity.

Pop QuizElectric power system

Answers: 1-F / 2-d / 3-b / 4-T

2. Generation, transmission, consumption of electricity

Traditional generation• Fueled by coal, oil, natural gas or

uranium• Fuels transported to power plant• Conversion occurs after transport of

primary inputs to power plant

Renewable generation• Fueled by wind, solar or hydro• Conversion occurs at point of

resource collection• Electricity itself is transported

http://www.eia.gov/totalenergy/data/annual/pecss_diagram.cfm

The distinction

Source: Wikipedia

The United States power transmission grid consists of 300,000 km of lines operated by 500 companies.

Transmission of electricity

Source: ERCOT, Link

Transmission of electricity

Source: ISO/RTO Council, Link

Transmission Operators

Distribution of electricity

Source: Unitil, click here

Centralized power generation

Pros: Economics of scale. Minimal number of

entities required to operate the entire system.

Easier to protect consumer rights.

Cons: Loss of electricity during

transmission. Requires substantial

infrastructure. More suited to

traditional generation. Susceptible to large

scale failures.

3. Regulation of electric power system

Generation:• Hydropower (FERC licensing)• Wind, solar and geothermal - state & local

regulation• Tradition generation: states are primary

regulators; must still comply with federal statutes (CAA, CWA)

Transmission: • FERC regulates (plus ITOs/RTOs)• Transmission provider not part of ISO/RTO:

open access transmission• States regulation: transmission siting,

varies from state to state

Distribution:• State jurisdiction: retail sales to ultimate

consumers (public utility commissions).• Vertically-integrated utility (generation,

transmission and distribution): significant state regulatory authority

(Click for video – 7:59 )

Public Utility Regulation

Nature of electric utility• Utility as “natural monopoly”• What is natural monopoly? Can grow and

reduce prices as only firm in market• Why “public utility”?

Solution to “natural monopoly” • For protection of consumers• Regulatory compact: Gov’t sets prices /

utility serves certain area

Rate-making formula: R = O + (V-D)*r

• R = revenue requirement• O = operating expenses• (V-D) = net amount of capital investment

(i.e. the ‘rate base’)• r = allowed rate of return

1900 19901960 20201930

Electric power regulation - timeline

Federal Power Act

(1920)

Public Utility

Regulatory Polici

es Act

(1978)

Clean Air Act

(1970)

Federal Power Act

Amendments (1935)

New York

v. FERC (2

002)

North Americ

an Electric R

eliability C

orporation (1969)

Otter Tail P

ower v. Unite

d States (1

973)

Energy Policy

Act (2005)

FERC Order No. 2

000 (1999)

1. True or false? The electric power system within the lower 48 states is made up of three interconnected grids.

2. Which is false – a. There are about 300,000

kilometers of transmission lines in the United States.

b. There are about 500 different companies that operate the transmission lines in the United States.

c. An RTO operates as part of a vertically integrated organization.

d. An RTO is an independent entity that controls the operations of transmission lines within a certain area.

3. Which is true --a. FERC regulates ITOs and RTOs.b. FERC has jurisdiction over the

price/terms of retail sales of electricity.

c. Vertically-integrated utilities, if engaged in interstate commerce, avoid state regs.

d. Traditional generation technologies are a better match with “distributed generation” than renewables.

4. True or false? FERC Order No. 2000 formalized the formation of RTOs.

Pop QuizElectric power – regulation

Answers: 1-F / 2-C / 3-a / 4-T

4. Future of the electric power system

(Click for video – 3:04)

The Smart Grid

Energy federalism

Electricity Federal State

Generation None State utility rules (power contracts)

Transmission FERC (interstate) States (intrastate)Regional Transmission Org

Distribution None State utility rules

Self-generated None Feed-in tariffs State rules

Class HypoOur Muni Utility (OMU) wants to grow. It commissioned a study and is now considering a change to its rate structure. Instead of a rate based mostly on per-Kwh usage, the utility plans to increase its fixed rate for all small residential/commercial customers.

OMU, however, would reduce fixed charges for big commercial “net metering” customers who sell power back to the grid, while increasing fixed charges for small residential “net metering” solar customers. Finally, OMU would ban third-party solar leases.

Group 1 is AARP.

Group 2 is the local Tea Party.

Group 3 is Renew Wisconsin .

The end

Class HypoMISO has proposed to allocate the costs of smart grid implementation in proportion to the amount of electricity used by each utility within its footprint. Taking into account the issues discussed in Illinois Commerce Commission v. FERC, please prepare talking points:

Group 1 is one is a rural utility within MISO.

Group 2 is a utility operating in a densely populated area within MISO.

Group 3 is FERC, which will decide on whether to approve these new cost allocation procedures.