Electric Utility Restructuring
Briefing Book
Congressional Research Service Library of Congress
Redistributed as a service of the National Library for the Environment

Background

Amy Abel

Glossary (via NARUC) | Restructuring Headline News (via energyonline)

In the past, the electric utility industry was considered one of the nation's most regulated industries, with states regulating utilities' retail and intrastate activities and the federal government regulating utilities interstate and wholesale activities. The foundation of federal regulation of electric utilities is the Public Utilities Holding Company Act of 1935 (PUHCA) and the Federal Power Act (FPA). These laws were enacted to eliminate unfair practices and other abuses by electricity and gas holding companies by requiring federal control in regulation of interstate public utility holding companies. Prior to PUHCA, electricity holding companies were characterized as having excessive consumer rates, high debt-to-equity ratios, and unreliable service. Under PUHCA, the Securities and Exchange Commission (SEC) regulates mergers and diversification proposals of holding companies whose subsidiaries engage in retail electricity or natural gas distribution. In addition, PUHCA requires that before purchasing securities or property from another company, a holding company is required to file for approval with the SEC. The SEC can exempt a utility from PUHCA if its business operations and those of its subsidiaries occur within one state or contiguous states.

The Federal Energy Regulatory Commission (FERC), under the Federal Power Act, is responsible for regulating other aspects of the electric utility industry. FERC regulates the terms, conditions and rates for the sale in transmission of interstate wholesale electricity. FERC is also responsible for regulating mergers, acquisitions, and dispositions of facilities used for interstate wholesale transactions. PUHCA remained virtually unchanged for 50 years until enactment of the Public Utility Regulatory Policies Act of 1978 (PURPA), P.L. 95-617. PURPA was, in part, intended to augment electric utility generation with more efficiently produced electricity and to provide equitable rates to electric consumers. Utilities are required to buy all power produced by qualifying facilities (QFs) at avoided cost. QFs are exempt from regulation under PUHCA and the FPA.

Electricity regulation was changed again in 1992 with the passage of the Energy Policy Act (EPACT), P.L. 102-486. The intent of Title 7 of EPACT is to increase competition in the electric generating sector by creating new entities called "exempt wholesale generators" (EWGs), that can generate and sell electricity at wholesale without being regulated as utilities under PUHCA. This title also provides EWGs with a way to assure transmission (wheeling) of their wholesale power to its purchasers. For more on EPACT and PURPA, see CRS Report 98-419.

In response to EPACT, on April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued two final rules to encourage wholesale competition (Orders 888 and 889). FERC believes these rules on transmission access will remedy undue discrimination in transmission services in interstate commerce and provide an orderly and fair transition to competitive bulk power markets.

Comprehensive as well as stand alone PURPA and PUHCA reform legislation to reduce electricity regulation and encourage the development of retail competition, currently under state jurisdiction, has been introduced in the 106th Congress. Proposals to increase competition in the electric utility industry involve separating three functions, generation, transmission and distribution. The comprehensive legislation addresses the following issues. For more detail, see CRS Issue Brief IB10006 and CRS Report RL30087

Page last updated October 24, 2000.

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