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In the United States, the electric power industry leads all other industrial sectors in reducing carbon dioxide (CO2) emissions. Millions of Americans invest directly and indirectly in the electric power industry and rely on dividends and the steady growth of utility stocks to supplement their income. The electric power industry is the most capital-intensive industry in the United Statesit is projected to spend approximately $85 billion a year through 2015 for major transmission, distribution, and smart grid system upgrades; new, cleaner generation capacity; and environmental and energy-efciency improvements. Electric companies are investing in energy efciency and are promoting innovative options for making energy efciency part of their business model.
KEY FACTS
about the
Table of Contents:
Introduction The Value of Electricity A Closer Look at the Electric Power Industry How the System Works The Regulation of Shareholder-Owned Electric Companies Protecting the Environment The Financial Side of the Electric Power Industry Powering Americas Electric Future 1 2 6 10
18 22 24 26
Introduction
The electric power industry is an $840-billion industry1 that provides a vital service to modern life. Electricity helps to grow our economy and to improve our standard of living. Americas shareholder-owned electric companies employ more than 500,000 workers, pay billions of dollars in tax revenue, provide a variety of public service programs to benet the local communities they serve, and produce one of our most valuable productselectricity. Not only is electricity the most prevalent energy form known, its versatility is unparalleled. Today, electric companies are transforming the way they produce power and deliver electricity to customers. These companies are utilizing new technologies that empower customers to use electricity more wisely, which reduces the need for new generation. And, they are investing in control technologies to reduce emissions at existing power plants, while building new facilities that use cleaner technologies. Going forward, electricity will play an increasingly larger role in transforming our transportation sector. A new generation of electric vehicles (EVs), and the ongoing electrication of industrial, eet and non-road vehicles, will help the nation enter an era of clean transportation and reduce its dependence on foreign oil. Diversifying the transportation sectors fuel mix also will enhance U.S. energy and economic security.
1
Edison Electric Institute (EEI). Industry size as measured by net property, plant, and equipment as of December 31, 2012.
1
1 | Key Facts About The Electric Power Industry The Value of Electricity
The
Value Electricity
of of
Its hard to imagine what our lives would be like without electricity. Thats because we depend on electricity for nearly everything we do. Since Thomas Edisons rst power plant lit up 800 light bulbs in New York City on the evening of September 4, 1882, electricity has become our most prevalent energy form. It drives our nations economy and powers smart technologies that enhance our quality of life.
Electricity powers our homes, ofces, and industries; enables communications, entertainment, and medical services; powers computers, electric technologies, smart phones, and the Internet; and runs various forms of transportation. Electricity is the most exible form of energy. Clearly, electricity is a crucial product we all take for granted. We scarcely think about it, unless we dont have it. Today, our high-technology society demands electricity to power nearly all new products that come to market. In fact, annual electricity use in the typical U.S. home has increased 61 percent since 1970.2 Our love for electronics and need to constantly be connected is helping to drive electricity use. According to the Consumer Electronics Association, U.S. household penetration of tablets has grown from zero percent to 44 percent in just the last four years, while penetration of smart phones has grown from 23 percent to 55 percent. And, the average person now views his or her mobile devices (phones or tablets) 150 times per day. Energy-efciency improvements have had a major impact in meeting national electricity needs relative to new supply. According to the U.S. Department of Energys Energy Information Administration (EIA), consumer demand for electricity is projected to increase 23 percent by 2040.3
2 3
U.S. Department of Energy, Energy Information Administration, Annual Electric Utility Report (EIA-861). U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2013 Early Release, December 2012.
Key Facts About The Electric Power Industry | 3
210%
64%
62%
Sources: U.S. Department of Labor, Bureau of Labor Statistics (BLS), and U.S. Department of Energy, Energy Information Administration (EIA).
serve. Electric companies also are the source of revenue and employment for other businesses in the community, as they depend on other companies for goods and services ranging from administration to complex generating equipment.
U.S. Energy Information Administration, data compiled from Electric Power Annual, 1994 to 2011 editions.
Key Facts About The Electric Power Industry |5
Closer Look
at the
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 contributes to the progress and prosperity of our nation.
6 | Key Facts About The Electric Power Industry A Closer Look At The Electric Power Industry 6
The electric power industry includes any entity producing, selling, or distributing electricity. Today, nearly 70 percent of American industries, businesses, and consumers are served by the nations roughly 200 shareholder-owned electric companies. 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 utilities, and other energy service providers.
12.3% 12.9%
Municipal Systems
11.1%
2.7%
Political Subdivisions
2.6%
State Projects 0.9%
69.8%
Note: Federal Utilities serve <0.1% of customers. Sum of components may not add to 100% due to independent rounding. Source: Edison Electric Institute, Business Information Group, based on 2011 data from the U.S. Energy Information Administration.
owned utilities and electric cooperatives. Government-owned utilties generally are unregulated by state utility commissions and FERC. E nergy service providers include corporations, 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.
0.5%
Transportation
<0.1%
Transportation
Source: Edison Electric Institute, Statistical Yearbook of the Electric Power Industry, 2011 Data, published January 2013. Note: Sum of components may not add to 100% due to independent rounding.
0.2%
System Works
Electricity has unique properties that do not allow it to be easily stored. It must be generated and delivered at the precise moment it is needed. To reach customers, electricity must travel from a power plant through transmission and distribution lines until it reaches its nal destination where it will be used. However, electricity travels along the path of least resistance. Unlike telecommunications, electricity cannot be routed to go to a particular destination. Electricity will travel whatever paths are made available to it, much as water entering a lake ows to the lowest exit points.
How
the
10 | Key Facts About The Electric Power Industry How The System Works 10
Most U.S. electricity is produced by coal, nuclear 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 in very 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 representing 1,000 kW. A 500-MW power plant provides enough electricity to serve nearly 342,000 residential customers.6
30
For 30 Days...
EEI, Statistical Yearbook of the Electric Power Industry. Calculation is based on a coal, natural gas, or nuclear power plant operating 90 percent of the time.
Key Facts About The Electric Power Industry | 11
Steam Turbine Emission Control Equipment Steam Steam Generator (A magnet rotates inside stationary coils of copper to produce electromagnetic current)
Condensation
Electric Current
Fuel Source
End Use
Boiler Fuel
Non-Hydro Renewables*
5.4%
Hydro
6.7%
Coal Nuclear
37.4%
19.0%
* Includes generation by agricultural waste, landfill gas recovery, municipal solid waste, wood, geothermal, non-wood waste, wind, and solar. ** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchased steam, 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 Plant Operations Report (EIA-923); 2012 preliminary generation data.
Natural Gas
30.4%
increasingly relying upon natural gas as a vital fuel. Electric companies are building very efcient 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.
2) 1) 3)
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).
4) 6) 5)
(4).
Finally, a distribution power line (5) carries the electricity until it reaches a home or business (6).
These transmission lines are divided into three regional grids: one in the East that connects the Eastern seaboard and the Plains states and Canadian provinces; another in the West that connects the Pacic coast and the Mountain states and Canadian provinces; and another that operates 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 coordination in operations of the electric companies that make up this network. For the electric power grid to work smoothly and with minimal disruption, a transmission operator must be aware not only of the power owing over its own system created by its own generators and the electricity demand of its customers, but it also must be aware of the transfers of electricity between other systems and how those transfers might ow through its own system. To coordinate power ow, 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 margin of capacity beyond the actual load is needed to ensure reliability at times of peak demand and to provide for maintenance down times. Operators use computerized systems to exercise minute-by-minute control over the network and to ensure that power transfers occur during specied times in pre-arranged amounts.
The
Regulation
of
Shareholder-owned electric companies are highly regulated at the federal and state levels.
18 18 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies
Although the electric power industry is a diverse one with thousands of suppliers, not all of them are regulated in the same way. Prices charged by some suppliers, such as shareholder-owned electric companies, are highly regulated at the federal and state levels; other suppliers, such as electric cooperatives and government-owned utilities, are not subject to the same regulatory rate requirements.
Federal Regulations
Shareholder-owned electric companies also are highly regulated by federal agencies.
The Federal Power Act (FPA) and the Federal Energy Regulatory Commission (FERC)
The FPA, enacted in 1935, is the primary federal 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 were reasonable, nondiscriminatory, and just to the consumer. In 1970, the FPCs functions were transferred to FERC and the newly created Department of Energy (DOE). Today, FERC regulates the transmission and sale of electricity in interstate wholesale electricity markets; utility sales of assets; mergers and acquisitions; and interconnections of certain facilities. FERC also provides oversight of grid reliability and cybersecurity standards. Additionally, FERC regulates interstate transmission and interstate wholesale power transactions, 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.
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, varies by state. In the majority of states, rates for electricity are determined by state regulators using a process called cost-of-service ratemaking. This has been the traditional model governing electric 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 bills is set in the competitive market. (Again, in these states, the local distribution portions of customers bills are still governed by state regulators.) Electric companies also are subject to environmental regulations issued by individual states. And, states have the primary role in approving the siting of company facilities, including transmission facilities that may serve many different states.
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 for possible market manipulation; enforces FERC regulatory requirements through imposition of civil penalties and other means; and administers accounting and nancial reporting regulations and conduct of regulated companies. FERC helps to protect the reliability of the highvoltage interstate transmission system with oversight authority for mandatory electric reliability standards, which include cybersecurity. In 2006, FERC certied the North American Electric Reliability Corporation (NERC) as the Electric Reliability Organizationan independent, self-regulating entity created by Congress that enforces reliability and cybersecurity standards. In 2008, FERC conditionally approved the industrys rst mandatory cybersecurity standards. The standards require users, owners, and operators of the nations electricity grid to implement training, physical security, and assetrecovery plans to protect against the threat of cyber attacks. FERC also has encouraged the formation of regional transmission organizations (RTOs) and Independent System Operators (ISOs) to oversee electricity markets. These organizations help to run the transmission grid on a regional basis. There are currently seven RTO/ISO regions across the United States.
While FERC has primary jurisdiction over rates for transmission and interstate wholesale transactions by shareholder-owned electric companies, the agency has only very limited jurisdiction over government-owned utilities and electric cooperatives.
The shareholder-owned segment of the electric power industry also must comply with the many federal regulations that apply to all U.S. businesses. These regulations include nancial and accounting requirements from the Securities and Exchange Commission and Commodity Futures Trading Commission; and anti-trust regulations from the Department of Justice and Federal Trade Commission.
Protecting
the
Environment
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 efciently as they meet the evergrowing demands for power. And, they always are searching for new and innovative ways to generate electricityand to use it wiselywhile also protecting the environment.
22 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies 22
Electric companies work hard to protect the environment of the communities in which they operate. Electric companies spend billions of dollars each year on environmental practices, technologies, and operational measures to protect human health and the environment. As a result, Americas electric generation eetincluding coal-based power plants that today produce more than 37 percent of the nations electricityhas become increasingly cleaner over the last two decades, and will continue to do so. Likewise, air quality in the United States has improved dramatically in recent years. In fact, since 1990, electric companies have reduced emissions of nitrogen oxides (NOx) by 76 percent and sulfur dioxide (SO2) by 79 percent, while electricity demand has grown by 36 percent. The electric power industry also is working to reduce carbon dioxide (CO2) and other greenhouse
gas (GHG) emissions. In the United States, the electric power industry leads all other industrial sectors in reducing CO2 emissions. To make signicant GHG reductions in the future, the electric power industry will rely upon a full suite of environmentally friendly technologies. In addition to advanced generation technologies, the industry will utilize energy efciency technologies; continue to upgrade the power grid; and support the deployment of electric vehicles. The U.S. Environmental Protection Agency is proposing a signicant number of rules that will affect the industrys existing generating eet over the next several years, as well as electric companies future plans for meeting electricity demand. Going forward, the industry is strongly committed to continued, cost-effective environmental protection as an integral part of generating electricity.
Utilities Have Substantially Reduced Air Emissions While Increasing Electricity Production
200 180 160 140 120 100 80 60 40 20 1990 1991 1992 1993 1994 1995 1996 1997
Real GDP h
69% 36%
79%
2006 2007
Electricity Use h
76%
2002 2003 2004 2005 2008 2009 2010 2011 2012
1990 represents the base year. Graph depicts increases or decreases from the base year. Sources: U.S. Department of Energy, Energy Information Administration (EIA), U.S. Environmental Protection Agency (EPA), and U.S. Bureau of Economic Analysis.
Key Facts About The Electric Power Industry | 23
The
Financial Side
of the
From a nancial perspective, the shareholder-owned sector of the electric power industry is vastly different from electric cooperatives and government-owned utilities because it relies more heavily on the private sector for investment capital needed to nance its operations.
24 | Key Facts About The Electric Power Industry The Financial Side of the Electric Power Industry 24
In 2012, the electric power industry produced $346 billion in operating revenues from the sale of energy and related services.7 In our nations economy, the electric power industry represents approximately three percent of real gross domestic product (GDP). The electric power industry is the most capital-intensive industry in the United States, and customer revenues alone cannot nance all the plants, facilities, and equipment needed to provide electric service. Electric companies raise additional money by issuing stock and selling debt securities. This nancing, called capitalization, takes three forms: long-term debt, common 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 prole of their investors. From an investment perspective, millions of Americans traditionally have relied on dividends 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.8 Investors in electric companies greatly benetted from the American Taxpayer Relief Act of 2012, which set the top tax rate for both dividends and capital gains at 20 percent for married taxpayers earning more than $450,000 ($400,000 for singles). For taxpayers below these thresholds, dividends and capital gains are taxed at 0 percent and 15 percent, depending on a lers 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
nless otherwise noted, all financial data in this section comes from EEIs U 2012 Financial Review. 8 Ernst & Young, The Beneficiaries of the Dividend Tax Rate Reduction: A Profile of Qualified Dividend Shareholders, Prepared for the Edison Electric Institute, May 2012.
7
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 eet to enhancing the grid to advancing electric transportation in all formsis setting the stage to ensure that America has the electricity it needs to power its future.
Powering Americas
26 | Key Facts About The Electric Power Industry Powering Americas Electric Future 26
The great challenge facing the electric power industry 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, the industry is transforming how electric companies generate and deliver electricity, and how customers use it. The industry also is committed to training a new generation of workers to help meet our nations future energy needs.
efciency can help to offset some of that demand. In many ways, energy efciency can be considered another fuel. However, state regulations generally compensate electric companies based on electricity sales. To truly transform the role of energy efciency in the United States, new business models that consider energy efciency as a resource are needed.
Electric Transportation
Electricity is a domestically produced fuel that will transform our nations transportation sector. EVs will help our country to reduce its dependence on foreign oil; to create new, high-quality American jobs; and to enter an era of clean transportation. The rst 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 system using a 120-volt (V) or 220V/240V outlet to recharge the car battery. (A 120V-outlet is a standard 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 paying $1.00 per gallon for gasoline. The electric power industry is committed to advancing 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 charging options in homes, businesses, and public areas. Enhancing our nations electric grid is a key component for large-scale commercialization of EVs. Smart grid technology will help EV owners choose the best time of day to charge their vehicles and optimize the benets of EVs.
Promoting Electrication
New technologies and customer demands for smaller and more powerful devices are helping to expand the use of electricity. Today, electrication offers unlimited potential and customer benets. And opportunities are not limited just to the residential sector, but cross a broad spectrum of commercial and industrial applications: shipyard cranes, warehouse forklifts, eet vehicles, mining and manufacturing, retail, and any fueled application that can be converted to an electric motor. Industries and resources that run on electricity now account for 60 percent of our GDP, and these same segments now account for 85 percent of GDP growth.
29 | Key Facts About The Electric Power Industry Powering Americas Electric Future
The Edison Electric Institute (EEI) is the association of U.S. shareholder-owned electric companies. Our members serve 95 percent of the ultimate customers in the shareholderowned segment of the industry, and represent approximately 70 percent of the U.S. electric power industry. We also have as Afliate members more than 80 International electric companies, and as Associate members more than 200 industry suppliers and related organizations. Organized in 1933, EEI works closely with all of its members, representing their interests and advocating equitable policies in legislative and regulatory arenas. EEI provides public policy leadership, critical industry data, strategic business intelligence, one-of-a-kind conferences and forums, and top-notch products and services. For more information, visit our Web site at www.eei.org.
May 2013