History of Regulation in the Utility Industry

Historically, the Federal Energy Regulatory Commission (FERC) regulated corporate sales of power to municipalities and cooperatives for resale. All such wholesale transactions were subject to this federal regulation even when all parties were located within the same state. The FERC also regulated large volume, high-voltage bulk power sales by corporate utilities to each other. FERC also coordinates agreements (power pools) and the rates and terms of transmission contracts. It is also within the FERC's jurisdiction to order one utility to interconnect with another or to sell bulk power to it ().

One of the cornerstones of regulation in the utility industry is the way in which utilities are permitted to bill for their products and services. Rate base regulation was in force throughout the industry and provided the revenue for most power utilities. In this calculation, "rate" is the rate of return allowed to the utility while "base" is the total investment on which the return is calculated. Total investment can be calculated in several different ways: fair return on fair value, original cost, investment cost, prudent investment cost and reproduction new cost. The rate base may be established by evaluating the asset side of the balance sheet, or by using

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978 (PURPA) created a new class of preferred power producers, the Qualified Facilities (QFs) and provided a serious challenge to the idea that only MVIUs were suitable for providing electricity to consumers (). In the late 1980s and early 1990s, some US states began to restructure their electric power sectors. During these early moves toward deregulation, there was some concern that the federal government might have prevented states from controlling how utilities were, and were not, regulated. In 1996, the Vermont Public Service Board commissioner went on record as being concerned about the decreasing influence of state authority in a restructured environment. During April 1996, California announced that it would become the first state to recommend to FERC regulators comprehensive ways to implement a new competitive electric market structure designed to bring about lower prices and more choices to consumers. The results of that preliminary recommendation are what recently went into effect in California ("Utilities Seek..." 429LAM065). Effects of Deregulation The move toward deregulation was focused on making the electric power industry (estimated at $212 billion annually) more competitive. The electric industry is the last
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Approximate Word count = 1508
Approximate Pages = 6 (250 words per page)

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