|Congressional Research Service Reports
Redistributed as a Service of the NLE*
IB10006: Electricity: The Road Toward Restructuring (pdf)
Amy Abel and Larry
and Industry Division
September 7, 2001
The Public Utility Holding Company Act of 1935
(PUHCA) and the Federal Power Act (FPA) were enacted to eliminate unfair
practices and other abuses by electricity and gas holding companies by
requiring federal control and 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. 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 of their wholesale
power to its purchaser. The effect of this Act on the electric supply
system is potentially more far-reaching than PURPA.
On April 24, 1996, the Federal Energy
Regulatory Commission (FERC) issued Orders 888 and 889. FERC believed
these rules would remedy undue discrimination in transmission services in
interstate commerce and provide an orderly and fair transition to
competitive bulk power markets. Order 2000, issued December 20, 1999,
established criteria for forming transmission organizations.
Comprehensive legislation involves three
issues. The first is PUHCA reform. Some electric utilities want PUHCA
changed so they can more easily diversify their assets. State regulators
have expressed concerns that increased diversification could lead to
abuses including cross-subsidization. Consumer groups have expressed
concern that a repeal of PUHCA could exacerbate market power abuses in a
monopolistic industry where true competition does not yet exist.
The second is PURPA's mandatory purchase
requirement provisions. Many investor-owned utilities support repeal of
these provisions. They argue that their state regulators' "misguided"
implementation of PURPA has forced them to pay contractually high prices
for power that they do not need. Opponents of this legislation argue that
it will decrease competition and impede development of renewable energy.
The third is retail wheeling. It involves
allowing retail customers to choose their electric generation supplier.
Currently, this is under state jurisdiction, and 24 states and the
District of Columbia have moved toward retail wheeling. However, some have
argued that the federal government should act as a backstop to ensure that
all states introduce retail wheeling, preempting state authority if
necessary. Several stand-alone bills have been introduced in the
107th Congress, but no comprehensive bills have been
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