400

300

200

100

0

IEA (2019). All rights reserved.

US customers pay relatively low prices for electricity in an IEA comparison.

Notes: Nominal prices. Tax information not available for the US. Industry price data not available for Australia and New Zealand.

Source: IEA (2019d), Prices and Taxes 2019, www.iea.org/statistics/.

Policies and regulations

Over the past few decades, the US electricity sector has undergone a series of policy and regulatory changes that led to a shift away from a vertically integrated model towards one that is today marked by more competition and liberalisation. Still, as the sector undergoes considerable change – including in the form of sizeable new additions of intermittent renewables, new technologies for provision of services and a shift towards performance-based utility metrics – the regulatory structure will continue to evolve. The basic regulatory framework of the US electricity system is embodied in the following legislative and regulatory actions:

193

ENERGY SECURITY

IEA. All rights reserved.

9. ELECTRICITY

Federal Power Act

The Federal Water Power Act of 1920 was initially designed to co-ordinate hydroelectric projects in the United States. The act established the Federal Power Commission (later FERC) to license, co-ordinate and regulate hydro projects. In 1935, the law was renamed the Federal Power Act, and extended jurisdiction to the commission over all interstate activities of the wholesale electricity and natural gas industries. The Federal Power Act has seen many amendments since it was first passed, underpinning electricity market liberalisation over the past few decades; the most recent major changes to the act were passed by Congress as part of the Energy Policy Act of 2005. Among its many provisions, the act authorises FERC to ensure just, reasonable and non-discriminatory rates.

Public Utilities Regulatory Policies Act

One of the first major efforts to introduce more competition into the electricity sector came when Congress passed the Public Utilities Regulatory Policies Act (PURPA) in 1978, in response to the energy crisis of the 1970s. In an effort to reduce dependency on foreign oil and diversify energy sources, PURPA required utilities to purchase power from independent power companies, including renewable energy generators and co-generation1 plants, if they could produce electricity for less than the cost of the utility’s plants (or the utility’s “avoided cost”). Prior to the passage of PURPA, utilities had monopolistic control over generating plants, so the law had a significant impact in opening up the generating sector to competition from independent power producers (IPPs). PURPA has also been a major driver of non-hydro renewable power installations, especially in recent years as the costs for renewables have fallen considerably, making it easier to clear the “avoided cost” threshold. Even more so, PURPA has led to notable growth in gas-fired co-generation facilities.

Energy Policy Act of 1992

Congress in 1992 passed comprehensive energy legislation under the Energy Policy Act of 1992. The legislation called on FERC to require utilities to open up transmission access to non-utility electricity providers on a non-discriminatory basis, thereby improving the outlook for IPPs and boosting competition in the wholesale power market.

FERC Orders 888 and 889

In 1996, FERC released the landmark Orders 888 and 889, in response to concerns that vertically integrated utilities were limiting competition and under-utilising surplus grid capacity. The orders required utilities to unbundle wholesale generation, transmission and ancillary services and required owners of transmission networks to offer non-discriminatory access to transmission lines. In that regard, Order 888 encouraged the creation of ISOs to serve as independent organisations with operational control over the grid to ensure open access to transmission systems. Though many regions moved forward with establishing ISOs, some states modified their laws to force utilities to unbundle electricity services to comply with the order. Order 889 specifically launched the Open Access Same-Time Information System (OASIS) and established standards for information sharing between utilities and consumers to improve transparency and limit anticompetitive behaviour on the part of utilities. As such, Orders 888 and 889 were critical to opening the US electricity sector to competition.

1 Co-generation refers to the combined production of heat and power.

194

IEA. All rights reserved.