Glossary of Key Electricity Terms

Access: The ability to use transmission/distribution facilities that are owned or controlled by a third party, usually a monopolistic investor-owned utility.

Access charges: Fees charged by the owner of a transmission/distribution network to independent producers that want to gain access to the grid.

Bundling: The combination of generation, transmission, and distribution services into a packaged whole that is sold at a single rate to customers. (Also see "Unbundling.")

Co-op: Industry jargon for a cooperative electric utility. A co-op is a common form of business organization owned and operated by a group of individuals, businesses, and organizations in similar occupations. Co-ops are located primarily in rural areas and are exempt from federal, state, and local taxes. Most co-ops received their initial funding from the Rural Electrification Administration.

Demand side management (DSM): Entails efforts of utilities to encourage conservation of electricity usage, including demand and consumption patterns. Many of these demand/load management measures have been required, or strongly encouraged, by regulators.

Distribution facilities: Equipment used to deliver electric power at lower voltages from the transmission system to the final user. Although considered a distinct segment of the market, distribution facilities generally can be grouped with transmission facilities because these assets perform a similar function that is wholly distinct from generating facilities.

Divestiture: The process of requiring monopolistic utilities to spin off one segment of their business; this is done to ensure that uncompetitive advantages created by former government actions are removed so that competition can develop.

Energy brokers: Companies that act as middlemen in an electronic marketplace in which electric power is priced, purchased, and traded. Energy brokerage works like other commodities that are traded in major markets, such as commodity futures markets.

EPAct: The Energy Power Act of 1992 allowed the FERC to introduce greater elements of competition in electric generation by ordering monopolistic utilities to provide access for a new category of power producers known as exempt wholesale generators, or "EWGs," to any other generation company along the transmission grid. These are exclusively wholesale transactions, however; retail contracts and transactions between independent producers and EWGs are not authorized under the EPAct.

FERC: The Federal Energy Regulatory Commission replaced the Federal Power Commission as the agency responsible for regulating the price, terms, and conditions of transactions in the U.S. wholesale electricity market, and any other electricity issues that are interstate in nature. Intrastate electricity issues and retail electric transactions are regulated primarily by state public utility commissions (PUCs).

FERC orders No. 888 and No. 889: FERC regulations issued in 1996 that implemented the wholesale access and competition required under the Energy Policy Act of 1992. The orders required the unbundling of service components by monopolistic utilities, established a computer-based information sharing system known as OASIS to allow electricity marketers and brokers to conduct transactions more efficiently, and required further actions to identify potentially stranded costs that could arise due to these requirements.

FPA: The Federal Power Act of 1935, which created the FERC’s predecessor, the Federal Power Commission, and granted it the power to regulate the interstate electricity transactions that could not be controlled by any single state PUC. The Federal Power Act was passed in conjunction with the PUHCA.

Generation facilities: The equipment and assets used to convert various forms of energy input into electrical power. Generating facilities are wholly distinct from transmission and distribution facilities and are considered highly competitive in their own right.

Grid: The interconnected power lines that constitute the transmission/distribution networks of the United States.

IPP: An independent power producer; a generating company that produces electric power but does not operate as an integrated utility because it has no transmission or distribution facilities. IPPs proliferated rapidly after the passage of the PURPA because the statute required monopolistic utilities to purchase IPP-producer power. IPPs are also commonly referred to as non-utility generators (NUGs).

IOU: Investor-owned utilities are shareholder-owned, publicly traded corporations that are taxed like other private businesses but regulated strictly by both state and federal officials. IOUs were granted regional monopolies via express government actions that simultaneously protected their service territory from competition while guaranteeing their profits and ensuring them against any market or financial risk. IOUs are collectively represented by the Edison Electric Institute based in Washington, DC.

kWh: Abbreviation for kilowatt hour, the most common unit of measure within the electric industry. Consumers are charged in cents per kilowatt hour.

Load: The aggregate amount of power demanded by electricity consumers at any given time and then placed on the grid by generating companies to fulfill that demand.

Muni: Industry jargon for a municipally owned electric utility. Municipalities are electric utilities owned and operated by a municipal government to serve citizens within their geographic boundaries. They typically consist of a generating plant or plants and a short-haul distribution system.

Open access: A deregulatory model that requires monopolistic utilities to allow rivals access to the transmission and distribution facilities they possess on non-discriminatory terms at cost-based rates. Many legislators and regulators view open access as the preferred method of de-monopolizing the industry and ensuring greater competition in the electric market.

Power pools/PoolCo: Centralized, independent organizations that would be responsible for purchasing all wholesale electric power in a given service region and then reselling power to final customers. Power pools would act as a short-term spot market where buyers and sellers could conduct electricity transactions. Many regulators argue PoolCo solutions represent the optimal method of coordinating operations and improving system reliability in the future. PoolCo critics argue the system would interfere with many existing and future contractual obligations and require too much ongoing, centralized regulatory oversight.

Power marketer: Any middleman firm that buys and resells power but does not own its own generating or transmission facilities. Power marketers must file with the FERC to conduct business because they resell power across state boundaries.

PUHCA: The Public Utility Holding Company Act of 1935 federalized the regulation of multi-state utility holding companies after they grew beyond the reach of state regulators. The PUHCA requires holding companies that own or control more than 10 percent of another utility to register with the Securities and Exchange Commission (SEC) and provide the agency with detailed records of their financial transactions and holdings. The law restricts merger and acquisition activity, curtails investment in non-utility industries, prohibits intercompany loans, and regulates other financial transactions strictly (such as the issuance of new securities). The statute also constrains and even narrows the powers of these holding companies, allowing them to control utilities essentially only within a given state, which maximizes state control — a primary objective of the act. Finally, the law created a regulatory distinction between "registered" holding companies and "exempt" holding companies. To qualify for an exemption from PUHCA, a holding company must be primarily intrastate in geographic scope and limited in business operations to the provision of a basic utility service. Not surprisingly, this has generally discouraged firms from expanding operations; only 14 "registered" holding companies currently exist in the United States. Over 150 "exempt" holding companies exist that exclusively serve customers within their own states.

PURPA: The Public Utility Regulatory Policies Act of 1978 was passed in the 1970s during the energy crisis to encourage the use of alternative energies and conservation techniques. It designated certain small independent power producers (IPPs) as qualifying facilities (QFs) under the law. As a QF, alternative energy producers earned exemptions from existing laws and were able to sell electricity wholesale to utilities. This had the beneficial, albeit unintended, effect of proving competition was feasible within the industry because independent generation proliferated over time.

Regulatory compact: Theory advocated by most regulators and electric utility companies that argues that in exchange for the construction and operation of a monopolistic, regional electrical system, utilities would have their profitability and overall financial viability guaranteed. The theory will be referred to often in the upcoming deregulatory debates; utilities will argue that because they have been guaranteed traditionally a fair return on any investment they made, assets or facilities that become uneconomical or "stranded" due to the rise of competition should be compensated for by competitors or captive ratepayers.

Retail wheeling: Non-utility generating companies that do not own transmission facilities sell the electricity they produce directly to residential, industrial, and commercial consumers. Currently wholesale wheeling is mandated under federal law.

Securitization: A stranded cost compensation mechanism which allows utilities to calculate their estimated future losses and then offer bonds on the open market equal to the amount they hope to recover. Securitizing future losses allows utilities to immediately collect the amount of compensation they desire and then pay back these new bond holders over a number of years. These stranded cost bonds are backed by the utilities’ promise that they will be able to collect on-going transition taxes from customers until the bonds are completely paid off. Policy makers must then mandate consumers pay transitional fees or taxes to compensate the new bondholders over the life of the bond.

Stranded benefits: Benefits many regulators and environmental groups argue will be lost with the move to competition in electricity: namely, mandated environmental conservation programs or those on the overall network integrity and reliability. Proponents of competition argue such benefits would be augmented in new ways if competition were allowed.

Stranded costs: Assets owned by utilities that supposedly would become uneconomical in a competitive marketplace: for example, non-depreciated generating facilities or pre-established long-term contractual obligations.

Transmission facilities: Equipment used to deliver electric power at higher voltages in bulk quantity, fromgenerating facilities to local distribution facilities, for final retail use. Industry officials often include distribution facilities with transmission facilities, however, when discussing transmission services relative to generation services.

Unbundling: The separation of the various components of electricity production, shipment, and service in order to introduce greater elements of competition to these segments of the industry. "Functional unbundling" would require monopolistic utilities to provide access to their transmission and distribution network in exchange for an access fee. "Structural unbundling" would require complete vertical disaggregation such that monopolistic utilities would be required to divest either their generation assets or their transmission/distribution assets.

Wheeling: The transmission of electric power by a utility that does not own or directly use the power it is transmitting.