Lessons from America: Can the very different US Regulatory System Provide Insights for Energy Regulation in Britain/Europe?
Catherine Mitchell, IGov Team, 30th June, 2014
Europe’s 500 million (m) population dwarfs the US’s 320 m but the US, with its 50 States, has a far bigger pool of differing energy regulatory situations to experiment and learn from than Europe’s 25 countries; and the States have a far longer history of working together than Europe does. American, or specifically the USA (as opposed to Canadian or South American) energy regulation is, at first sight, very different from that in place in Britain, or in most of Europe. However, this series of blogs (Lessons from America) illuminates practices in the US that British or European regulators and decision-makers could beneficially learn from.
Upfront it is important to say that the following description of basic US energy regulation talks in generalities, because there are so many State-specific cases. It is always important to go to each State to check exactly what is happening in that State. That said, US Energy Regulators are able to say without irony that since a utility ‘provides an essential service for the well-being of society it is an industry affected with the public interest’ and this sets the context for energy regulation US.
Industry structure is very different with Investor-Owned Utilities (IOUs) serving about 75% of the US population, and Public Power Utilities (i.e. customer owned which include city owned /municipal ; public utility districts; cooperatives and a few other types) serving the other 25%. These utilities can be both vertically integrated (VI) and distribution-only utilities – the latter generally being the smaller consumer owned ones. In States that have implemented deregulation, all the IOUs are deregulated such that their generation is subject to competition. Distribution tends to combine both distribution and retail (i.e. British supply) functions, only again that is State specific. A non-utility generator (NUG) or an independent power producer (IPP) owns one or more power plants, but does not act as a retailer/supplier.
The Federal Energy Regulatory Commission’s (FERC) jurisdiction is over the wholesale market and transmission. States regulate retail markets and distribution. State Regulators (see below) adopt construction standards for lower voltage retail distribution facilities, quality of service standards, and the prices and terms of service for electricity provided by IOUs. Federal Power Marketing Agencies (PMAs) were set up to market power produced from dams (e.g. Bonneville Power Administration). FERC has clear authority to regulate wholesale power sales, except when the seller is a public agency. Hundreds of companies are registered with FERC as wholesale power suppliers. While some own their own power plants, marketers often do not: instead they buy power from multiple suppliers and then re-sell it. Brokers may arrange the transactions, although they never take ownership of the energy.
The US has three transmission synchronous interconnections: the Eastern Interconnection; the Western interconnection; and the Electricity Reliability Council of Texas. FERC sets the rates and service standards for most bulk power transmission. However, a number of organisations manage the flow of power over the transmission network. The US is divided into eight North American reliability councils (NERC) which has specific legal requirements under FERC authority. Within the NERC regions there are multiple entities which manage the minute to minute coordination: regional transmission organisations (RTOs), independent system operators (ISOs) and individual utility control areas.
All States have State Regulatory Organisations – most usually called Public Utility Commissions (PUC) or Public Service Commissions (PSCs), and for ease will be called PUC/PSCs. Most PUC/PSCs consist of 3-5 (usually) appointed, but sometimes elected, full time commissioners, with a professional staff. They generally have broad regulatory authority. Only adjudications are appealable as any court decision would be, but the burden of proof is on the Appellant and generally it must demonstrate that the decision is in violation of a law or the constitution, is unjust and unreasonable, or against the manifest weight of the evidence.
Most states have a statutory consumer advocate that represents residential and in some cases, small commercial or all customers. They are either set up as an independent state agency or a department of the Attorney General’s office. In a few cases, they are part of the Governor’s office or the commission. Customer-owned utilities typically have very different regulatory oversight, more related to their ownership but in some cases COUs are voluntarily regulated by the PUC/PSCs or are required by statute to be regulated. In any event, most do not submit to Commission regulation and when they do it is regulation with a light hand. There are clear processes for participation by stakeholders in the rulemaking process and there are clear procedural elements of the tariff proceedings.
The evidence upon which the PUC/PSCs make their decision is similar to that undertaken by the European regulatory model. Whether in the US or Europe, the goal of Regulators is to ensure safe, secure and affordable energy to all customers. Unlike in Europe where there is usually competitive retail provision, States divide between those which have retail regulation – i.e. no retail competition – and those which have retail competition. Even including the latter States, most States have a Default Supply or a Basic Service Tariff, whereby customers can choose to buy electricity where the price is determined through a process approved by the Commission.
This very brief overview of US regulation will hopefully enable the Lessons from America blogs which will appear over the next few days to be understandable.