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KEY FACTS
Electric Power
Industry
about
the
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The electric power industry is an $840-billion industry thatpowers our economy and enhances our everyday lives.
In our nations economy, the electric power industryrepresents approximately 3 percent of real gross domesticproduct.
Americas shareholder-owned electric companies employmore than 500,000 workers.
Nearly 70 percent of industries, American businesses,and consumers are served by shareholder-owned electriccompanies.
continuesp
Know?Did You
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Today the typical U.S. home has, on average, at least 25 elec-
tronic products99 percent of which must be plugged in orrecharged.
Fuel diversity is key to reliable and affordable electricity.Electric companies use a variety of fuels to generate elec-tricity, and tend to use the fuels that are most cost-effective
and readily available in their region.
Since 1990, electric companies have reduced emissions ofnitrogen oxides (NOx) by 76 percent and sulfur dioxide (SO
2)
by 79 percent, while electricity use has increased 36 percent.
The electric power industry is developing advanced technologiesto generate electricity more cleanly and efficiently.
Know?
Did You
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In the United States, the electric power industry leads allother industrial sectors in reducing carbon dioxide (CO
2)
emissions.
Millions of Americans invest directly and indirectly inthe electric power industry and rely on dividends and thesteady growth of utility stocks to supplement their income.
The electric power industry is the most capital-intensive industryin the United Statesit is projected to spend approximately $85billion a year through 2015 for major transmission, distribution,and smart grid system upgrades; new, cleaner generation ca-pacity; and environmental and energy-efficiency improvements.
Electric companies are investing in energy efficiency and arepromoting innovative options for making energy efficiency partof their business model.
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KEY FACTSElectric Power
Industry
KEY FACTSElectric Power
Industry
about
the
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Table of Contents:
Introduction 1
The Value of Electricity 2
A Closer Look at the Electric Power Industry 6
How the System Works 10
The Regulation of Shareholder-Owned
Electric Companies 18
Protecting the Environment 22
The Financial Side of the Electric Power Industry 24
Powering Americas Electric Future 26
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1 | Key Facts About The Electric Power Industry The Value of Electricity
Introduction
1
1Edison Electric Institute (EEI). Industry size as measured by net property, plant, and equipment as of December 31, 2012.
The electric power industry is an $840-billion industry1that provides a vitalservice to modern life. Electricity helps to grow our economy and to improveour standard of living.
Americas shareholder-owned electric companies employ more than 500,000workers, pay billions of dollars in tax revenue, provide a variety of public ser-vice programs to benefit the local communities they serve, and produce oneof our most valuable productselectricity. Not only is electricity the mostprevalent energy form known, its versatility is unparalleled.
Today, electric companies are transforming the way they produce power anddeliver electricity to customers. These companies are utilizing new technol-ogies that empower customers to use electricity more wisely, which reducesthe need for new generation. And, they are investing in control technologiesto reduce emissions at existing power plants, while building new facilitiesthat use cleaner technologies.
Going forward, electricity will play an increasingly larger role in trans-forming our transportation sector. A new generation of electric vehicles(EVs), and the ongoing electrification of industrial, fleet and non-road vehicles,will help the nation enter an era of clean transportation and reduce itsdependence on foreign oil. Diversifying the transportation sectors fuel mixalso will enhance U.S. energy and economic security.
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ofValueThe
Electricity
Its hard to imagine what our lives
would be like without electricity.
Thats because we depend on elec-
tricity for nearly everything we do.
Since Thomas Edisons first
power plant lit up 800 light bulbs
in New York City on the evening of
September 4, 1882, electricityhas become our most prevalent
energy form. It drives our nations
economy and powers smart
technologies that enhance our
quality of life.
of
2
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2U.S. Department of Energy, Energy Information Administration,Annual Electric Utility Report (EIA-861).
3U.S. Department of Energy, Energy Information Administration,Annual Energy Outlook 2013 Early Release, December 2012.
Electricity powers our homes, offices, andindustries; enables communications, entertain-ment, and medical services; powers computers,electric technologies, smart phones, and the
Internet; and runs various forms of transportation.Electricity is the most flexible form of energy.
Clearly, electricity is a crucial product we all
take for granted. We scarcely think about it, un-
less we dont have it. Today, our high-technology
society demands electricity to power nearly all
new products that come to market. In fact, an-
nual electricity use in the typical U.S. home hasincreased 61 percent since 1970.2
Our love for electronics and need to constantly
be connected is helping to drive electric-
ity use. According to the Consumer Electronics
Association, U.S. household penetration of tab-
lets has grown from zero percent to 44 percent
in just the last four years, while penetration ofsmart phones has grown from 23 percent to 55
percent. And, the average person now views his
or her mobile devices (phones or tablets) 150
timesper day.
Energy-efficiency improvements have had a
major impact in meeting national electricity
needs relative to new supply. According to theU.S. Department of Energys Energy Informa-
tion Administration (EIA), consumer demand for
electricity is projected to increase 23 percent by
2040.3
Did You
Know?
99%of households have televisions
99%of households have refrigerators
82%of households have clothes washers
79%of households have clothes dryers
79% of households have DVD players
76%of households have at least one computer
61%of households have central air conditioning
59% of households have dishwashers
43%of households have DVRs
Source: U.S. Department of Energy, Energy Information Administration
The typical U.S. home now has,on average, at least 25 electronicproducts99 percent of which
must be plugged in or recharged.
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4 | Key Facts About The Electric Power Industry
0
20
40
60
80100
120
140
160
180
200
220
(Percent)
Health Care Natural
Gas
Gasoline
(regular)
Food &
Beverages
Transportation Consumer
Price Index
Housing Electricity
210%
126%
87%72% 67% 65% 64% 62%
Increase in cost of selectedconsumer goods1991-2011 (nominal dollars)
Sources: U.S. Department of Labor, Bureau of Labor Statistics (BLS), and U.S. Department of Energy, Energy Information Administration (EIA).
Changes In Electricity Prices Compared To Other Consumer Products
Electricity Prices RemainAn Excellent Value
While American homes use more electricity
today than ever, the portion of household bud-
gets dedicated to electricity bills actually has
declined. In fact, the growth rate for electric-
ity prices is lower than other important goods.
Overall, the price of one kilowatt-hour (kWh) of
electricity (adjusted for inflation) has increased
at a lower rate than other consumer goods like
gasoline, health care, housing, food, and trans-portation.
The Industrys InvestmentIn Local Communities
In addition to providing reliable electricity to
our homes and businesses, Americas elec-
tric companies are solid supporters of local
economic development efforts in thousands of
communities across the nation. They contribute
to the growth, strength, and stability of these
communities by paying billions of dollars in taxes,
by employing more than 500,000 workers, and
by providing a variety of public service programsthat address the needs of the communities they
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Key Facts About The Electric Power Industry | 5
4 U.S. Energy Information Administration, data compiled from Electric Power Annual,1994 to 2011 editions.
serve. Electric companies also are the source of
revenue and employment for other businesses
in the community, as they depend on other com-
panies for goods and services ranging from ad-
ministration to complex generating equipment.
Energy EfficiencyPrograms Are MakingA Difference
Electric companies are working with their
customers to use energy more efficiently. Theyare utilizing new technologies that empower
customers to use energy more wisely, and they
are helping their customers reduce their elec-
tricity usage and control their energy bills with
energy-efficiency programs. These programs
are making a difference.
Between 1989 and 2011, electric companiesspent approximately $51 billion on demand-side
management programs, which provide customers
greater control over their energy use. Cumula-
tively, these efforts have saved 1,279 billion kWh
of electricity. In 2011 alone, electric company
energy efficiency programs saved 108.6 billion
kWh of electricityor enough to power nearly
9.68 million average U.S. homes for one year.4
Did You
Know?The average U.S. household has5.7 devices that are connectedto the Internet, deliver apps, andare powered by electricity.
Source: NPD Group, Connected Intelligence, Connected Home,March 2013.
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6 | Key Facts About The Electric Power Industry A Closer Look At The Electric Power Industry
The electric power industry plays a
critical role in our society on many
levels. It advances the nations
economic growth and productivity;promotes business development
and expansion; and provides solid
employment opportunities to
American workers. It is a robust
and growing industry that contrib-utes to the progress and prosperity
of our nation.
Closer LookA
at theElectric Power Industry
6
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The electric power industry includes any entityproducing, selling, or distributing electricity.Today, nearly 70 percent of American industries,businesses, and consumers are served by the
nations roughly 200 shareholder-owned electriccompanies.
Shareholder-owned electric companies are
owned by millions of shareholders through
direct investments or indirectly through other
investments such as retirement funds, life
insurance policies, or mutual funds. The rest of
the nations electricity customers are served by
electric cooperatives, government-owned utili-ties, and other energy service providers.
Key Facts About The Electric Power Industry | 7
Cooperatives
12.3%
Shareholder-Owned ElectricCompanies and Affiliates
69.8%
Municipal Systems
11.1%
State Projects 0.9%
Energy Service Providers
2.7%
Political Subdivisions
2.6%
Electric Cooperatives
12.9%
Most Americans Are Served By Shareholder-Owned Electric Companies
Note: Federal Utilities serve
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There are several different types of electricpower suppliers, including:
Shareholder-owned electric companies,
which serve nearly 70 percent of all custom-ers, are tax-paying businesses that are highly
regulated at the federal, state, and local lev-
els, and are financed by the sale of stocks and
bonds to the general public.
These companies also include non-utility
generators, which generally produce elec-
tricity for their own purposes or to sell intothe wholesale market, but not directly to
individual retail customers (or end users).
Non-utility generators include cogenerators,
small power producers, independent power
producers, and merchant generators.
Electric cooperativesare private compa-
nies owned by their customer members. Theyare eligible for subsidized financing from the
Rural Utilities Service (part of the U.S. Depart-
ment of Agriculture); are generally unregulated
by state utility commissions and the Federal
Energy Regulatory Commission (FERC); and
are exempt from paying federal income taxes.
Government-owned electric utilitiesinclude municipal systems, public powerdistricts, state projects, and federal utilities.
Municipal utilities are owned by the munici-
pality in which they operate and are financed
through municipal bonds. Federally owned
utilities are involved in the generation and/or
transmission of electricity, most of which is
sold at wholesale prices to local government-
owned utilities and electric cooperatives.
Government-owned utilties generally are
unregulated by state utility commissions and
FERC.
Energy service providersinclude corpora-tions, generators, brokers, utility generation
subsidiaries, or any other entity licensed to
sell electricity to retail or end-use electric
customers in a competitive market using the
transmission or distribution facilities of an
electric distribution company.
Did YouKnow?
On December 17, 1880,Thomas Edison founded theEdison Electric Illuminating
Company, which established thefirst shareholder-owned electriccompany. The companys PearlStreet Station power plantbegan providing electricity toNew York City in 1882.
8 | Key Facts About The Electric Power Industry
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Residential 37.9%
Electric Company Customers By Class
Electricity Sales To Total Ultimate Customers
Residential 87.3% Commercial 12.2% Industrial 0.5%
Transportation
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10 | Key Facts About The Electric Power Industry How The System Works
Electricity has unique propertiesthat do not allow it to be easilystored. It must be generated anddelivered at the precise moment itis needed.
To reach customers, electricitymust travel from a power plantthrough transmission and distri-bution lines until it reaches itsfinal destination where it will be
used. However, electricity travelsalong the path of least resistance.Unlike telecommunications, elec-tricity cannot be routed to go to aparticular destination. Electricitywill travel whatever paths are
made available to it, much aswater entering a lake flows to thelowest exit points.
How
System Works
the
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Most U.S. electricity is produced by coal, nu-
clear power, or natural gas. Renewable energy
sourcessuch as hydropower, solar, wind,
geothermal, and biomassmake up a growing
percentage of the fuel mix. Fuel oil is used invery small amounts and provides less than one
percent of all U.S. electricity.
The amount of power produced by these plants is
measured in megawatts (MW), with one MW rep-
resenting 1,000 kW. A 500-MW power plant pro-
vides enough electricity to serve nearly 342,000
residential customers.6
Electricity Is Measured inWatts
Electricity is measured in units of power called
watts. One watt is such a small amount of power,however, that the more commonly used mea-surement is the kilowatt (kW), representing 1,000watts. The higher the watt or kilowatt rating of aparticular electrical device, the more electricity itrequires.
The amount of electricity a power plant gener-
ates or a customer uses over a period of time
is measured in kilowatt-hours (kWh). Kilowatt-hours are determined by multiplying the num-
ber of watts required by the number of hours
of use, and then dividing by 1,000. For example,
if you use a 15-watt compact fluorescent light
bulb five hours a day for 30 days, you have used
15 watts of power for 150 hours, or 2.25 kWh of
electrical energy. Although electricity use varieswidely depending on the season and the region
of the country, a typical household uses about
933 kWh of electricity a month.5
Producing Electricity inGenerating Plants
Electricity is produced by domestic fuel sourcesin generating plants. Electric generators have
the ability to choose among a broad variety of
fuel sources to produce electricity. The combina-
tion of energy sources used is referred to as the
generation, or fuel, mix. 30
Totals 15 Watts
of Power for
150 Hours or
2.25 Kilowatt-hours
One 15-Watt
Light Bulb
Used 5 Hours
Per Day...
For 30
Days...
5 EEI, Statistical Yearbook of the Electric Power Industry.6Calculation is based on a coal, natural gas, or nuclear power plant operating
90 percent of the time.
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12 | Key Facts About The Electric Power Industry
How A Power Plant Works
In a fossil fuel plant, the fuelprimarily coal or
natural gasis burned in a boiler to turn water
into steam. (Fuel oil, another fossil fuel, is usedto generate less than one percent of the nations
electricity.) Under high pressure, the steam turns
the blades of a turbine that spins a generator,
producing electricity. In a nuclear plant, steam is
produced by the controlled splitting of uranium
atoms in a process known as nuclear fission.
In a hydroelectric power plant, moving water
provides the energy to turn the turbine blades.
With wind turbines, the flow of wind turns theturbine blades, which then turn an electric gen-
erator. With most solar power, sunlight is con-
verted into electricity through solar cells that
absorb the suns energy. Alternatively, the heat
from the sun can be used to create steam, which
moves the turbine.
Steam
Steam
FuelSource
EmissionControlEquipment
Steam Turbine
Steam
Boiler
Water
CondensedWater
Generator(A magnet rotates insidestationary coils of copperto produce electromagneticcurrent)
Condensation
End Use
Spent FuelEmissions Electric Current
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Fuel Diversity Is Key
Americas electric companies rely on a variety
of domestic fuels to generate electricity.
Fuel diversity helps to protect electric companiesand their customers from contingencies such as
fuel unavailability, fuel price fluctuations,
and changes in regulatory practices that can
drive up the cost of a particular fuel. Fuel
diversity also helps to ensure stability and
reliability in electricity supply and strengthens
national security.
Key Facts About The Electric Power Industry | 13
The electricity generation mix differs from state
to state and region to region, depending on the
availability and cost of fuels located there. Majorchanges in the generation mix can have economic
impacts, especially on a regional basis.
2012 National Fuel Mix
Natural Gas
30.4%
Hydro
6.7%
Non-Hydro Renewables*
5.4%
Fuel Oil 0.6%Other** 0.6%
Coal
37.4%Nuclear
19.0%
* Includes generation by agricultural waste, landfill gas recovery, municipal solidwaste, wood, geothermal, non-wood waste, wind, and solar.
** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchasedsteam, sulfur and miscellaneous technologies.
Sum of components do not add to 100% due to independent rounding.
Source: U.S. Department of Energy, Energy Information Administration, Power PlantOperations Report (EIA-923); 2012 preliminary generation data.
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14 | Key Facts About The Electric Power Industry
Building Advanced Generation Technologies
Nuclear: Nuclear power continues to play animportant role in the industrys future gen-
eration plans. The industry has increasedthe capacity of existing nuclear plants, and
several electric companies are building new
nuclear facilities. The industry also supports
the advancement of small modular reactors
and a solution to the long-term management
of spent fuel.
Renewables: Renewable energy, includinghydropower, wind, and solar, has grown rap-idly over the past several years, and EIA proj-
ects that renewables will continue to increase
their share of the nations generation mix
from 10 percent in 2010 to 16 percent in 2040.
However, the development of renewables
recently has been slowed due to low natural
gas prices. Currently, 29 states and theDistrict of Columbia have renewable electricity
standard (RES) mandates.
Going forward, the electric power industry
will continue to pursue renewable energy
resources, including solar and wind power.
Electric companies also are investing in ways
to store electricity, including battery, fly-wheel, and compressed air storage technolo-
gies. These storage technologies will help to
improve the feasibility and cost-effectiveness
of variable renewable energy sources.
To meet our nations demand for electricity, elec-
tric companies depend primarily upon baseload
generationpower that is available around theclockusing readily available fuel sources. At
the same time, the electric power industry is
meeting stricter environmental standards. The
industry is developing and deploying a suite of
advanced generating technologies to reduce
emissions overall and to mitigate the impact of
future price increases for any one fuel.
Coal: While electric companies are closingmany older power plants, coal currently re-
mains the primary fuel source for our nations
electricity mix because the United States has
plentiful supplies of coal within its borders.
The industry is beginning to invest in more
advanced, cleaner coal-plant technologies,
including integrated gasification combined-cycle (IGCC), ultra-supercritical, and circulat-
ing fluidized bed plants. The industry also is
exploring methods for capturing and storing
carbon dioxide (CO2), although large-scale
commercial deployment of carbon capture and
storage (CCS) technology is still years away.
Natural gas: The electric power industry isincreasingly relying upon natural gas as a vital
fuel. Electric companies are building very
efficient combined-cycle natural gas-based
plants. And, new sources of natural gassuch
as shale gasare transforming the market for
this important fuel source and are keeping
prices low.
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Meeting Customer Demand
Electricity must be produced when customers
need it. Because electricity cannot be stored
easily or economically, electric companies andother electricity suppliers must have enough
generation capacity available to meet maxi-
mum demand on their systems, whenever that
occurs. To ensure that there is enough elec-
tricity available to meet customer demand,
some power plants work around the clock.
Typically, companies use coal-based, hydro,
high-efficiency natural gas, or nuclear plantsto provide this continuous baseload ser-
vice because they are less expensive to run for
prolonged periods and are designed specifically
to do so.
Pumped storage hydro, natural gas, or, to a far
lesser extent, oil-based units are usually the units
of choice for providing service for the hours of theday when demand hits its highest, or peak, levels.
These peaker units may be started and stopped
quickly, unlike coal- and nuclear-based plants.
Non-hydro renewable energy sources, such as
wind and solar, are variable fuels that are not
available at all times. As a result, variable renew-
able resources must be backed up by generatingfacilities that can be better controlled, such as
natural gas plants.
The availability of renewable resources also varies
among regions; not all areas of the country have
abundant renewable energy resources. Moreover,
renewable resources often are located in remote
areas. Moving this power to where it is neededrequires an adequate transmission system, which
often increases project costs.
Delivering Electricity toCustomers
When electricity leaves a power plant, its voltage
is increased at a step-up substation near theplant. Next, the energy travels along a transmis-
sion line, which consists of heavy cables strung
between tall towers, to the point where it is
needed. Once there, the voltage is decreased or
stepped-down at another substation. Finally, a
distribution power line then carries the electricity
until it reaches a home or business. Electricity
travels at nearly the speed of light, arriving ata destination at almost the same moment it is
produced.
Ensuring Electric Reliability
The North American electric system is com-
prised of a complex, interconnected network of
generating plants, transmission lines, and dis-
tribution facilities. Electric companies have in-
terconnected their transmission systems so that
they may buy and sell power from each other
and from other power suppliers, and to ensure
reliability of service.
Transmission lines link the generators of
electricity to the distributors, transporting
electricity to local electric companies, which in
turn deliver it to customers. Redundancy is built
into the transmission system to provide electric
companies with alternative power paths in
emergencies and to allow them to buy and
sell power from each other and from other
power suppliers.
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Getting Electricity Where It Is Needed
When electricity leaves a power plant
(1), its voltage is increased at a
step-up substation (2).
Next, the energy travels along a
transmission line to the area where the
power is needed (3).
Once there,the voltage is decreased or
stepped-down at another substation(4).
Finally, a distribution power line (5)
carries the electricity until it reaches a
home or business(6).
1)
2)
3)
4)
6)
5)
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Key Facts About The Electric Power Industry | 17
Did You
Know?The North American Electric Reli-ability Corporation oversees eightregional reliability entities and isresponsible for establishing and
enforcing mandatory reliabilitystandards for the power grid.
These transmission lines are divided into three
regional grids: one in the East that connects the
Eastern seaboard and the Plains states and Ca-
nadian provinces; another in the West that con-
nects the Pacific coast and the Mountain statesand Canadian provinces; and another that op-
erates in most of Texas. There are very limited
connections between the three grids to help
minimize the impact of disruptions to the system.
The structure of the grid helps to make reliability
possible, but what makes it a reality is the coor-
dination in operations of the electric companiesthat make up this network. For the electric power
grid to work smoothly and with minimal disrup-
tion, a transmission operator must be aware not
only of the power flowing over its own system
created by its own generators and the electric-
ity demand of its customers, but it also must
be aware of the transfers of electricity between
other systems and how those transfers might
flow through its own system.
To coordinate power flow, control areas have
been formed. Control areas consisting of one
or several transmission operators ensure that
there is always a balance between electricity
generation and the amount of electricity needed
at any given moment to meet demand. A marginof capacity beyond the actual load is needed to
ensure reliability at times of peak demand and
to provide for maintenance down times. Opera-
tors use computerized systems to exercise min-
ute-by-minute control over the network and to
ensure that power transfers occur during speci-
fied times in pre-arranged amounts.
R l tiThe
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18 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies
Shareholder-owned electric
companies are highly regulated
at the federal and state levels.
RegulationShareholder-Owned Electric Companies
The
of
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Although the electric power industry is a diverseone with thousands of suppliers, not all of themare regulated in the same way. Prices chargedby some suppliers, such as shareholder-owned
electric companies, are highly regulated at thefederal and state levels; other suppliers, suchas electric cooperatives and government-ownedutilities, are not subject to the same regulatoryrate requirements.
State Regulations
Shareholder-owned electric companies are
regulated by state agencies, typically known as
Public Utility Commissions or Public Service
Commissions. All states regulate rates for the
delivery of electricity to end users (customers)
through distribution wires and related systems.
How the price for electricity is set, however, var-
ies by state.
In the majority of states, rates for electricity
are determined by state regulators using a pro-
cess called cost-of-service ratemaking. This
has been the traditional model governing elec-
tric rates for many decades. However, in the 16
states and the District of Columbia where retail
electric competition programs are in place, the
price for the generation portion of customers billsis set in the competitive market. (Again, in these
states, the local distribution portions of custom-
ers bills are still governed by state regulators.)
Electric companies also are subject to environ-
mental regulations issued by individual states.
And, states have the primary role in approving
the siting of company facilities, including trans-mission facilities that may serve many different
states.
Federal Regulations
Shareholder-owned electric companies also are
highly regulated by federal agencies.
The Federal Power Act (FPA) and the FederalEnergy Regulatory Commission (FERC)
The FPA, enacted in 1935, is the primary fed-
eral law that regulates the shareholder-owned
segment of the electric power industry. The
FPA created the Federal Power Commission
(FPC), which ensured that electricity rates werereasonable, nondiscriminatory, and just to the
consumer. In 1970, the FPCs functions were
transferred to FERC and the newly created De-
partment of Energy (DOE).
Today, FERC regulates the transmission and
sale of electricity in interstate wholesale elec-
tricity markets; utility sales of assets; mergersand acquisitions; and interconnections of cer-
tain facilities. FERC also provides oversight of
grid reliability and cybersecurity standards.
Additionally, FERC regulates interstate trans-
mission and interstate wholesale power transac-
tions, which involve shareholder-owned electric
companies buying or selling electricity from one
another or from other power suppliers for resale
to the ultimate customer. FERC has the authority
to regulate the prices, terms, and conditions of
these wholesale power sales and transmission
services. FERC reviews certain mergers and
acquisitions and corporate transactions by
shareholder-owned electric companies.
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20 | Key Facts About The Electric Power Industry
FERC also reviews the siting applications for
electric transmission projects under very limited
circumstances; licenses and inspects private,
municipal, and state hydroelectric projects;
monitors and investigates energy markets forpossible market manipulation; enforces FERC
regulatory requirements through imposition of
civil penalties and other means; and adminis-
ters accounting and financial reporting regula-
tions and conduct of regulated companies.
FERC helps to protect the reliability of the high-
voltage interstate transmission system with over-sight authority for mandatory electric reliability
standards, which include cybersecurity. In 2006,
FERC certified the North American Electric Re-
liability Corporation (NERC) as the Electric Reli-
ability Organizationan independent, self-reg-
ulating entity created by Congress that enforces
reliability and cybersecurity standards.
In 2008, FERC conditionally approved the indus-
trys first mandatory cybersecurity standards.
The standards require users, owners, and
operators of the nations electricity grid to
implement training, physical security, and asset-
recovery plans to protect against the threat of
cyber attacks.
FERC also has encouraged the formation of re-
gional transmission organizations (RTOs) and
Independent System Operators (ISOs) to oversee
electricity markets. These organizations help
to run the transmission grid on a regional ba-
sis. There are currently seven RTO/ISO regions
across the United States.
While FERC has primary jurisdiction over rates
for transmission and interstate wholesale trans-
actions by shareholder-owned electric com-
panies, the agency has only very limited juris-
diction over government-owned utilities andelectric cooperatives.
Additional Federal Regulations
The electric power industry must comply with
literally hundreds of environmental regulations,
including dozens of rules created under the
federal Clean Air Act and Clean Water Act. TheU.S. Environmental Protection Agency has pri-
mary responsibility for developing and enforcing
most federal environmental regulations. Other
federal agencies have broad authority over
electric company facilities crossing federal
lands or affecting unique interests, such as
historical sites or endangered species.
Electric companies also are regulated by the
Federal Communications Commission. Electric
companies are required to allow telecommuni-
cations companies to use electric poles for wires
and other facilities supporting wireless, fiber,
broadband, and other communications systems.
The structural integrity, safety, security, and
reliability of utility poles are fundamentalcomponents of the nations critical energy
infrastructureand the cost to companies for
maintaining these poles is considerable.
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The shareholder-owned segment of the elec-
tric power industry also must comply with the
many federal regulations that apply to all U.S.
businesses. These regulations include finan-
cial and accounting requirements from theSecurities and Exchange Commission and
Commodity Futures Trading Commission; and
anti-trust regulations from the Department of
Justice and Federal Trade Commission.
Protecting the Nations Grid From
Cyber ThreatsThe electric power industry is committed toprotecting the nations electric grid from cyber
threats and to enhancing its cyber defenses. Cy-
bersecurity is a top priority for the industry and
has been a growing focus over the past decade.
The industry employs threat mitigation actions
focused on preparation, prevention, response,
and recovery in its operations.
The electric power industry partners with
federal agencies, including FERC, DOE, and the
Department of Homeland Security, to improve
sector-wide resilience for cyber threats. The
industry also collaborates with the National
Institute of Standards and Technology, NERC,
and federal intelligence and law enforce-
ment agencies to strengthen its cybersecurity
capabilities.
As threats to the grid grow and become more so-
phisticated, the electric power industry remains
committed to strengthening its defense against
cyber attacks. The industry also supports pas-
sage of comprehensive cybersecurity legislation
Did You
Know?In the 1890s, electric companiesbegan to develop in urbanareas because of economies ofscale. By 1907, New York and
Wisconsin began to regulatethese companies. Regulationspread to two-thirds of thestates by 1920, and todayelectric companies areregulated in all 50 states and
the District of Columbia.
that respects the sectors existing cybersecurity
regulatory regime, limits the scope of new fed-
eral emergency authority, and encourages close
coordination and information sharing among
stakeholders.
Key Facts About The Electric Power Industry | 21
P otecti
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22 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies
To generate the electricity we
need, electric companies must
harness the Earths natural
resources. Recognizing that their
operations can have impacts on
the environment, electric companies
work diligently to use resources
efficiently as they meet the ever-
growing demands for power.
And, they always are searching
for new and innovative ways to
generate electricityand to use it
wiselywhile also protecting the
environment.
Protecting
Environment
the
22
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Financial SideThe
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24 | Key Facts About The Electric Power Industry The Financial Side of the Electric Power Industry
Financial SideTheof the
Electric Power Industry
From a financial perspective, the
shareholder-owned sector of the
electric power industry is vastly
different from electric coopera-
tives and government-owned utili-
ties because it relies more heavily
on the private sector for invest-
ment capital needed to finance its
operations.
24
In 2012, the electric power industry produced
$346 billi i i f h l Did You
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$346 billion in operating revenues from the sale
of energy and related services.7 In our nations
economy, the electric power industry repre-
sents approximately three percent of real gross
domestic product (GDP).
The electric power industry is the most capi-
tal-intensive industry in the United States, and
customer revenues alone cannot finance all the
plants, facilities, and equipment needed to pro-
vide electric service. Electric companies raise
additional money by issuing stock and selling
debt securities. This financing, called capitaliza-
tion, takes three forms: long-term debt, com-mon stock, and a very small amount of preferred
stock (less than one percent). Electric companies
attempt to implement an appropriate balance of
debt (bonds) and equity (stock) that matches the
risk profile of their investors.
From an investment perspective, millions of
Americans traditionally have relied on divi-dends and the modest, steady growth of utility
stocks to supplement their income. Most utility
shareholders are 50 years old or older and earn
$100,000 or less annually.8Investors in electric
companies greatly benefitted from the American
Taxpayer Relief Act of 2012, which set the top
tax rate for both dividends and capital gains at20 percent for married taxpayers earning more
than $450,000 ($400,000 for singles). For tax-
payers below these thresholds, dividends and
capital gains are taxed at 0 percent and 15 per-
cent, depending on a filers income level.
Lower dividend tax rates make dividend-paying
stocks more attractive to investors. This helps
to lower companies cost of capitali.e., fewer
new shares of stock need to be issued to raise
the same of amount of new capital. By attracting
new investment in utility shares, electric com-
panies are able to raise the capital needed for
major transmission, distribution, and smart grid
system upgrades; new, cleaner generating
capacity; and environmental and energy-
efficiency improvements. Looking forward, the
industrys capital expenditures are forecasted
to be approximately $85 billion per year through
2015. Notably, 2012 actual spending of $90.5
billion was an increase of 15 percent over the
previous year. These investments will help to
ensure a reliable supply of electricity to custom-ers and continued environmental improvements
in the future. And, these capital-improvement
programs offer an important source of much-
needed, high-quality job creation in many states.
Shareholder-owned electric companies also
contribute substantially to the nations tax base
through federal, state, and other local taxes, suchas property taxes. For the year ended December
31, 2012, shareholder-owned electric companies
incurred a total of $26.6 billion in taxes.
7 Unless otherwise noted, all financial data in this section comes from EEIs2012 Financial Review.
8 Ernst & Young, The Beneficiaries of the Dividend Tax Rate Reduction: A Profileof Qualified Dividend Shareholders, Prepared for the Edison Electric Institute,May 2012.
Key Facts About The Electric Power Industry | 25
Did YouKnow?
The electric power industry is themost capital-intensive industry inthe United States.
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26 | Key Facts About The Electric Power Industry Powering Americas Electric Future
The electric power industry is
working to transform the way that
people think about and use electricity.
Everything the industry is doing
todayfrom building a cleaner
generation fleet to enhancing the
grid to advancing electric transpor-
tation in all formsis setting the
stage to ensure that America has
the electricity it needs to power its
future.
Powering Americas
Electric Future
26
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The great challenge facing the electric power in-
dustry is the need to supply affordable, reliable,
and environmentally sustainable electricity to a
country that is growing in both population and
standard of living. To meet this challenge, theindustry is transforming how electric companies
generate and deliver electricity, and how cus-
tomers use it. The industry also is committed
to training a new generation of workers to help
meet our nations future energy needs.
Improving Energy EfficiencyElectric companies have a long and successful
track record of working with their customers
on ways to reduce their electricity usage and to
control their energy bills with energy-efficiency
programs. Today, electric companies are pro-
moting a variety of innovative business and reg-
ulatory approaches that will encourage the use
of state-of-the-art efficiency technologies and
services. They also are pursuing a wide range
of opportunities to improve energy efficiency
such as improving the efficiency of buildings
and appliances, accelerating the development
of advanced metering infrastructure and smart
meters, advancing more efficient distribution
transformers, and encouraging the develop-ment and deployment of electric vehicles (EVs).
While it may be necessary to add new generat-
ing capacity in order to meet the demands of
the economy and a growing population, energy
efficiency can help to offset some of that demand.
In many ways, energy efficiency can be consid-
ered another fuel. However, state regulations
generally compensate electric companies based
on electricity sales. To truly transform the role ofenergy efficiency in the United States, new busi-
ness models that consider energy efficiency as a
resource are needed.
Enhancing the Grid
The electric power industry is transforming the
nations electric grid by incorporating telecom-munications and information technology in-
frastructure into utility operations. These new
capabilities will provide electric companies and
customers greater control over electricity use.
By enhancing the grid, the industry is creat-
ing a platform for new technologies to increase
system reliability and efficiency. This 21st-cen-
tury grid will provide electric companies with a
nearly real-time situational awareness capabil-
ity, which will increase the industrys resiliency
against physical and cyber attacks.
This new infrastructure platform will provide
important benefits to customers, including
significant opportunities for energy savings
and a variety of potential new services. For
example, smart meters measure electricity us-
age far more frequently than traditional meters
and can send data to and from electric compa-
nies and their customers.
Key Facts About The Electric Power Industry | 27
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Electric Transportation
Electricity is a domestically produced fuel that
will transform our nations transportation sector.
EVs will help our country to reduce its depen-
dence on foreign oil; to create new, high-quality
American jobs; and to enter an era of clean
transportation. The first round of EVs began
arriving in several U.S. markets at the end of
2010, and the rollout will continue over the next
few years.
EVs are plugged in to the existing electricity sys-
tem using a 120-volt (V) or 220V/240V outlet to
recharge the car battery. (A 120V-outlet is a stan-
dard household outlet, while a 220V/240V-outlet
is similar to an outlet used for a clothes dryer.)
Owners can recharge their batteries overnight,
using lower-cost, off-peak electricity. Under this
scenario, charging an EV is comparable to pay-
ing $1.00 per gallon for gasoline.The electric power industry is committed to ad-
vancing electric transportation and to utilizing
electricity as a transportation fuel. The industry
is helping to address the infrastructure needed
for widescale deployment of EVs, such as charg-
ing options in homes, businesses, and public
areas. Enhancing our nations electric grid is akey component for large-scale commercializa-
tion of EVs. Smart grid technology will help EV
owners choose the best time of day to charge
their vehicles and optimize the benefits of EVs.
Promoting Electrification
New technologies and customer demands for
smaller and more powerful devices are helping
to expand the use of electricity. Today, electrifi-
cation offers unlimited potential and customer
benefits. And opportunities are not limited just
to the residential sector, but cross a broad spec-
trum of commercial and industrial applications:
shipyard cranes, warehouse forklifts, fleet ve-
hicles, mining and manufacturing, retail, and
any fueled application that can be converted to
an electric motor.
Industries and resources that run on electric-
ity now account for 60 percent of our GDP, and
these same segments now account for 85 per-
cent of GDP growth.
Training a New Generation
of Utility Workers
The electric power industry is focused on build-
ing a skilled workforce to help meet our na-
tions future energy needs. EIA projects that our
countrys demand for electricity will increase
23 percent by 2040. To meet this demandand
to account for the projected retirements in the
industryelectric companies will need to hireskilled workers throughout the country. And,
as the industry utilizes emerging energy tech-
nologies, electric companies are committed
to helping workers learn necessary new skills
and advance in their careers. From line work-
ers to customer service operators to electrical
engineers, the electric power industry providesmuch-needed, high-quality job opportunities
throughout the country.
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29 | Key Facts About The Electric Power Industry Powering Americas Electric Future
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701 Pennsylvania Ave., N.W. |Washington, D.C. 20004-2696 |202.508.5000 |www.eei.org
The Edison Electric Institute (EEI) is the association of U.S.shareholder-owned electric companies. Our members serve95 percent of the ultimate customers in the shareholder-
owned segment of the industry, and represent approximately70 percent of the U.S. electric power industry. We alsohave as Affiliate members more than 80 International elec-tric companies, and as Associate members more than 200industry suppliers and related organizations.
Organized in 1933, EEI works closely with all of its mem-bers, representing their interests and advocating equitablepolicies in legislative and regulatory arenas.
EEI provides public policy leadership, critical industry data,strategic business intelligence, one-of-a-kind conferencesand forums, and top-notch products and services.
For more information, visit our Web site at www.eei.org.
May 2013