Key Facts About Electric Power Industry

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KEY FACTS

Electric Power

Industry

about

the


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The electric power industry is a $737-billionindustry that powers our economy and enhancesour everyday lives.

In our nations economy, the electric power industryrepresents 3 percent of real gross domestic product.

Americas shareholder-owned electric companiesemploy more than 500,000 workers.

Nearly 70 percent of industries, Americanbusinesses, and consumers are served byshareholder-owned electric companies.

continuesp

Know?Did You


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Demand for electricity is projected to increase31 percent by 2035 as the number of products

powered by electricity increases. Today, for example,76 percent of U.S. homes have at least one computer.

Fuel diversity is key to reliable and affordable elec-tricity. Electric companies use a variety of fuels to

generate electricity, and tend to use the fuels thatare most cost-effective and readily available intheir region.

Since 1990, electric companies have reduced emis-

sions of both nitrogen oxides (NOX) and sulfur dioxide(SO

2) by about 70 percent, while electricity use has

increased 38 percent.

The electric power industry is developing advanced

generation technologies to generate electricity morecleanly.

Know?

Did You


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In the United States, the electric power industryleads all other industrial sectors in reducing carbondioxide (CO

2) emissions.

Millions of Americans invest in the electric utilityindustry and rely on the modest, steady growth ofutility stocks to supplement their income.

The electric power industry is capital intensiveit is spending approximately $75 billion per year formajor transmission, distribution, and smart grid sys-tem upgrades; new, cleaner generation capacity; andenvironmental and energy-efficiency imp ovements.

Electric companies are investing in energy efficiencyand are promoting innovative options for makingenergy efficiency part of their busine s model.


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KEY FACTSElectric Power

Industry

KEY FACTSElectric Power

Industry

about

the


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Table o Contents:

Introduction 1

The Value of Electricity 2

A Closer Look at the Electric Power Industry 6

How the System Works 10

The Regulation of Shareholder-Owned

Electric Companies 18

Protecting the Environment 22

The Financial Side of the Electric Power Industry 24

Powering Americas Electric Future 26


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1 | Key Facts About The Electric Power Industry The Value of Electricity

Introduction

1

1 Edison Electric Institute,2010 Financial Review, June 2011. Industry size as measured by net property, plant, and equipment as of December 31, 2010.

The electric power industry is a $737-billion industry1 that provides a vitalservice to modern lie. Electricity helps to grow our economy and to improveour standard o living.

Americas shareholder-owned electric companies employ more than 500,000workers, pay billions o dollars in tax revenue, provide a variety o public ser-vice programs to benet the local communities they serve, and produce oneo our most valuable productselectricity. Not only is electricity the mostprevalent energy orm known, its versatility is unparalleled.

Today, electric companies are transorming the way they produce power anddeliver it to customers. These companies are utilizing new technologies thatempower customers to use electricity more wisely, which reduces the needor new generation. And, they are investing in control technologies to re-duce emissions at existing power plants, while building new acilities thatuse cleaner technologies.

Going orward, electricity will play an increasingly larger role in trans-orming our transportation sector, as a new generation o plug-in electricvehicles (PEVs) will help to reduce U.S. dependence on oreign oil and to cre-ate new, high-quality American jobs.


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ofValueThe

Electricity

Its hard to imagine what our lives

would be like without electricity.

Thats because we depend on elec-

tricity or nearly everything we do.

Since Thomas Edisons rst

power plant lit up 800 light bulbs

in New York City on the evening o

September 4, 1882, electricityhas become our most prevalent

energy orm. It drives our nations

economy and powers smart

technologies that enhance our

quality o lie.

of

2


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2 U.S. Department of Energy, Energy Information Administration,Residential Energy Consumption Survey, March 2011.

3 U.S. Department of Energy, Energy Information Administration,2011 Annual Energy Outlook, April 2011.

Electricity powers our homes, oces, andindustries; enables communications, entertain-ment, and medical services; powers computers,electric technologies, smart phones, and the

Internet; and runs various orms o transpor-tation. Electricity is the most fexible and mostcontrollable orm o energy.

Clearly, electricity is a crucial product we all

take or granted. We scarcely think about it, un-

less we dont have it. Today, our high-technology

society demands electricity to power nearly

all new products that come to market. In act,the share o electricity used by appliances and

consumer electronics in U.S. homes has nearly

doubled over the past three decades.2

While energy-eciency improvements have had

a major impact in meeting national electricity

needs relative to new supply, the demand or

electricity continues to increase. According tothe U.S. Department o Energys Energy Inor-

mation Administration (EIA), consumer demand

or electricity is projected to increase 31 percent

by 2035.3

Did You

Know?

99%o households have televisions

99% o households have rerigerators

82%o households have a clothes washer

79% o households have a clothes dryer

79% o households have DVD players

76%o households have at least one computer

61%o households have central air conditioning

59% o households have a dishwasher

50%o households have a DVR

Source: U.S. Department of Energy, Energy Information Administration

The typical U.S. home now has,on average, almost 25 electronicproducts99 percent o which

must be plugged in or recharged.

Key Facts About The Electric Power Industry | 3


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4 | Key Facts About The Electric Power Industry

0

20

40

60

80

100

120

140

160

180

(Percent)

Health Care Natural

Gas

Gasoline

(regular)

Consumer

Price Index

Housing Food &

Beverages

Transportation Electricity

159%

139%

105%

68% 67% 67%60%

50%

Increase in cost of selectedconsumer goods1990-2010 (nominal dollars)

Sources: U.S. Department of Labor, Bureau of Labor Statistics (BLS), and U.S. Department of Energy, Energy Information Administration (EIA).

Changes In Electricity Prices Compared To Other Consumer Products

Electricity Prices RemainAn Excellent Value

While American homes use more electricity

today than ever, the portion o household bud-

gets dedicated to electricity bills actually has

declined. In act, the growth rate or electric-

ity prices is lower than other important goods.

Overall, the price o one kilowatt-hour o elec-

tricity (adjusted or infation) has increased at

a lower rate than other consumer goods like

gasoline, health care, housing, ood, and trans-portation.

The Industrys InvestmentIn Local Communities

In addition to providing reliable electricity to

our homes and businesses, Americas elec-

tric companies are solid supporters o local

economic development eorts in thousands o

communities across the nation. They contribute

to the growth, strength, and stability o these

communities by paying billions o dollars in taxes,

by employing more than 500,000 workers, and

by providing a variety o public service programsthat address the needs o the communities they


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4 U.S. Energy Information Administration, data compiled from Electric Power Annual,1994 to 2009 editions.

serve. Electric companies also are the source o

revenue and employment or other businesses

in the community, as they depend on other com-

panies or goods and services ranging rom ad-

ministration to complex generating equipment.

Energy EfciencyPrograms Are MakingA Dierence

Electric companies are working with their cus-

tomers to use energy more eciently. They areutilizing new technologies that empower cus-

tomers to use energy more wisely, and they are

helping their customers reduce their electricity

usage and control their energy bills with energy-

eciency programs. These programs are mak-

ing a dierence.

Between 1989 and 2009, electric company energyeciency programs saved 1,083 billion kilowatt-

hours (kWh) o electricity. Thats enough elec-

tricity to power nearly 100 million average U.S.

homes or one year.4

Did You

Know?More than one-third o U.S.households now own a smartphone that must be chargedby electricity.

Source: Consumer Electronics Association


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6 | Key Facts About The Electric Power Industry A Closer Look At The Electric Power Industry

The electric power industry plays a

critical role in our society on many

levels. It advances the nations

economic growth and productivity;promotes business development

and expansion; and provides solid

employment opportunities to

American workers. It is a robust

and growing industry that contrib-utes to the progress and prosperity

o our nation.

Closer LookA

at theElectric Power Industry

6


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The electric power industry includes any entityproducing, selling, or distributing electricity.Today, nearly 70 percent o American industries,businesses, and consumers are served by the

nations roughly 200 shareholder-owned electriccompanies.

Shareholder-owned electric companies are

owned by millions o shareholders through

direct investments or indirectly through other

investments such as retirement unds, lie

insurance policies, or mutual unds. The rest o

the nations electricity customers are served by

electric cooperatives, government-owned utili-ties, and other energy service providers.


Cooperatives

12.3%

Shareholder-Owned ElectricCompanies and Afliates

68.6%

Municipal Systems

11.2%

State Projects 0.9%

Energy Service Providers

3.7%

Political Subdivisions

2.6%

Electric Cooperatives

13.0%

Most Americans Are Served By Shareholder-Owned Electric Companies

Note: Federal Utilites serve


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There are several different types of electricpower suppliers, including:

Shareholder-owned electric companies,

which serve nearly 70 percent o all custom-ers, are tax-paying businesses that are highly

regulated at the ederal, state, and local lev-

els, and are nanced by the sale o stocks and

bonds to the general public.

These companies also include non-utility

generators, which generally produce elec-

tricity or their own purposes or to sell intothe wholesale market, but not directly to

individual retail customers (or end users).

Non-utility generators include cogenerators,

small power producers, independent power

producers, and merchant generators.

Electric cooperatives are private compa-

nies owned by their customer members; theyare eligible or subsidized nancing rom

the Rural Utilities Service (part o the U.S.

Department o Agriculture), and are generally

unregulated and exempt rom paying ederal

income taxes.

Government-owned electric utilities

include municipal systems, public powerdistricts, state projects, and ederal utili-

ties. Municipal utilities are owned by the

municipality in which they operate and

are nanced through municipal bonds. Fed-

erally owned utilities are involved in the

generation and/or transmission o electricity,

most o which is sold at wholesale prices to

local government-owned utilities and electric

cooperatives. Government-owned utilities

generally are unregulated.

Energy service providers include corpora-

tions, generators, brokers, utility generationsubsidiaries, or any other entity licensed to

sell electricity to retail or end-use electric

customers in a competitive market using the

transmission or distribution acilities o an

electric distribution company.

Did YouKnow?

On December 17, 1880,Thomas Edison ounded theEdison Electric IlluminatingCompany, which established therst shareholder-owned electric

company. The companys PearlStreet Station power plantbegan providing electricity toNew York City in 1882.



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Electric Company Customers By Class

Electricity Sales To Total Ultimate Customers

Residential 87.3% Commercial 12.2% Industrial 0.5%

Transportation


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Most U.S. electricity is produced by coal, nu-

clear power, or natural gas. Renewable energy

sourcessuch as hydropower, solar, wind,

geothermal, and biomassmake up a growing

percentage o the uel mix. Fuel oil is used invery small amounts and provides less than one

percent o all U.S. electricity.

The amount o power produced by these plants is

measured in megawatts (MW), with one MW rep-

resenting 1,000 kW. A 500-MW power plant pro-

vides enough electricity to serve nearly 342,000

residential customers.6

Electricity Is Measured inWatts

Electricity is measured in units o power called

watts. One watt is such a small amount o power,however, that the more commonly used mea-surement is the kilowatt (kW), representing 1,000watts. The higher the watt or kilowatt rating o aparticular electrical device, the more electricity itrequires.

The amount o electricity a power plant gener-

ates or a customer uses over a period o time

is measured in kilowatt-hours (kWh). Kilowatt-hours are determined by multiplying the num-

ber o watts required by the number o hours

o use, and then dividing by 1,000. For example,

i you use a 15-watt compact fuorescent light

bulb ve hours a day or 30 days, you have used

15 watts o power or 150 hours, or 2.25 kWh o

electrical energy. Although electricity use varieswidely depending on the season and the region

o the country, a typical household uses about

919 kWh o electricity a month.5

Producing Electricity inGenerating Plants

Electricity is produced by domestic uel sourcesin generating plants. Electric generators have

the ability to choose among a broad variety o

uel sources to produce electricity. The combina-

tion o energy sources used is reerred to as the

generation, or uel, mix. 30

Totals 15 Watts

o Power or

150 Hours or

2.25 Kilowatt-hours

One 15-Watt

Light Bulb

Used 5 Hours

Per Day...

For 30

Days...

5 EEI, Statistical Yearbook of the Electric Power Industry.6 Calculation is based on a coal, natural gas, or nuclear power plant operating

90 percent of the time.



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How A Power Plant Works

In a ossil uel plant, the uelprimarily coal or

natural gasis burned in a boiler to turn water

into steam. (Fuel oil, another ossil uel, is usedto generate less than one percent o the nations

electricity.) Under high pressure, the steam turns

the blades o a turbine that spins a generator,

producing electricity. In a nuclear plant, steam is

produced by the controlled splitting o uranium

atoms in a process known as nuclear ssion.

In a hydroelectric power plant, moving water

provides the energy to turn the turbine blades.

With wind turbines, the fow o wind turns theturbine blades, which then turn an electric gen-

erator. With most solar power, sunlight is con-

verted into electricity through solar cells that

absorb the suns energy. Alternatively, the heat

rom the sun can be used to create steam, which

moves the turbine.

Steam

Steam

FuelSource

EmissionControlEquipment

Steam Turbine

Steam

Boiler

Water

CondensedWater

Generator(A magnet rotates insidestationary coils of copperto produce electromagneticcurrent)

Condensation

End Use

Spent FuelEmissions Electric Current


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Fuel Diversity Is Key

Americas electric companies rely on a variety

o domestic uels to generate electricity.

Fuel diversity helps to protect electric companiesand their customers rom contingencies such as

uel unavailability, uel price fuctuations,

and changes in regulatory practices that can

drive up the cost o a particular uel. Fuel

diversity also helps to ensure stability and

reliability in electricity supply and strengthens

national security.


The electricity generation mix diers rom state

to state and region to region, depending on the

availability and cost o uels located there. Majorchanges in the generation mix can have economic

impacts, especially on a regional basis.

2010 National Fuel Mix

* Includes generation by agricultural waste, landfill gas recovery, municipal solidwaste, wood, geothermal, non-wood waste, wind, and solar.

** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchasedsteam, sulfur, and miscellaneous technologies.

Sources: U.S. Department of Energy, Energy Information Administration, PowerPlant Report (EIA-920), and Combined Heat and Power Plant Report (EIA-920); 2010preliminary data.

Natural Gas

23.8%

Hydro

6.1%

Non-Hydro Renewables*

4.1%

Fuel Oil 0.9%Other** 0.6%

Coal

44.9%Nuclear

19.6%


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Building Advanced Generation Technologies

Nuclear: Nuclear power also will play an im-portant role in the industrys uture genera-

tion plans. The industry continues to increasethe capacity o existing nuclear plants, and

electric companies are ling a number o new

reactor license applications. Moving orward,

the ederal governments loan guarantee

program and search or a solution or the

management o spent uel will help to remove

some o the barriers to increasing nuclear

power.

Renewables: Renewable energy has grownrapidly over the past several years, and EIA

projects that renewables will continue to in-

crease their share o the nations generation

mixrom 10 percent in 2010 to 14 percent

in 2035. However, the development o renew-

ables recently has been slowed due to lownatural gas prices. Currently, 29 states and

the District o Columbia have renewable elec-

tricity standard (RES) mandates.

Going orward, the electric power industry

will continue to pursue renewable energy

resources, including solar and wind power.

Electric companies also are investing in waysto store electricity, including battery, fy-

wheel, and compressed air storage technolo-

gies. These storage technologies will help to

improve the easibility and cost-eectiveness

o variable renewable energy sources.

To meet our nations growing demand or elec-

tricity, electric companies will need to continue

to increase their baseload generationpowerthat is available around the clockwith readily

available uel sources. At the same time, the

electric power industry is meeting stricter en-

vironmental standards. The industry is develop-

ing and deploying a suite o advanced generating

technologies to achieve emissions reductions

and to mitigate the impact o uture price in-

creases or any one uel.

Coal: While utilities are closing many olderpower plants, coal will continue to serve as the

primary uel source or our nations electricity

mix because the United States has plentiul

supplies o coal within its borders. The industry

is beginning to invest in more advanced, cleaner

coal-plant technologies, including integratedgasication combined-cycle (IGCC), ultra-

supercritical, and circulating fuidized bed

plants. The industry also is exploring methods

or capturing and storing carbon dioxide (CO2),

although large-scale commercial deployment

o carbon capture and storage (CCS) technol-

ogy is still years away. Natural gas: The electric power industry is

increasingly relying upon natural gas as a vital

uel. Electric companies are building very

ecient combined-cycle natural gas-based

plants. And, new sources o natural gassuch

as shale gasare transorming the market or

this important uel source and are keeping

prices low.


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Meeting Customer Demand

Electricity must be produced when customers

need it. Because electricity cannot be stored

easily or economically, electric companies andother electricity suppliers must have enough

generation capacity available to meet maxi-

mum demand on their systems, whenever that

occurs. To ensure that there is enough elec-

tricity available to meet customer demand,

some power plants work around the clock.

Typically, companies use coal-based, hydro,

high-eciency natural gas, or nuclear plantsto provide this continuous baseload ser-

vice because they are less expensive to run or

prolonged periods and are designed specically

to do so.

Pumped storage hydro, natural gas, or, to a ar

lesser extent, oil-based units are usually the units

o choice or providing service or the hours o theday when demand hits its highest, or peak, levels.

These peaker units may be started and stopped

quickly, unlike coal- and nuclear-based plants.

Non-hydro renewable energy sources, such as

wind and solar, are variable technologies that

are not available at all times. As a result, vari-

able renewable resources must be backed upby generating acilities that can be better con-

trolled, such as natural gas plants.

The availability o renewable resources also varies

among regions; not all areas o the country have

abundant renewable energy resources. Moreover,

renewable resources oten are located in remote

areas. Moving this power to where it is neededrequires an adequate transmission system.

Delivering Electricity toCustomers

When electricity leaves a power plant, its voltage

is increased at a step-up substation near theplant. Next, the energy travels along a transmis-

sion line, which consists o heavy cables strung

between tall towers, to the point where it is

needed. Once there, the voltage is decreased or

stepped-down at another substation. Finally,

a distribution power line carries the electricity

until it reaches a home or business. Electricity

travels at nearly the speed o light, arriving ata destination at almost the same moment it is

produced.

Ensuring Electric Reliability

The North American electric system is com-

prised o a complex interconnected network o

generating plants, transmission lines, and dis-

tribution acilities. Electric companies have in-

terconnected their transmission systems so that

they may buy and sell power rom each other

and rom other power suppliers, and to ensure

reliability o service.

Transmission lines link the generators o

electricity to the distributors, transporting

electricity to local electric companies, which in

turn deliver it to customers. Redundancy is built

into the transmission system to provide electric

companies with alternative power paths in

emergencies and to allow them to buy and

sell power rom each other and rom other

power suppliers.



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Getting Electricity Where It Is Needed

When electricity leaves a power plant

(1), its voltage is increased at a

step-up substation (2).

Next, the energy travels along a

transmission line to the area where the

power is needed (3).

Once there,the voltage is decreased or

stepped-down, at another substation(4).

Finally, a distribution power line (5)

carries the electricity until it reaches a

home or business (6).

1)

2)

3)

4)

6)

5)



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Did You

Know?The North American Electric Reli-ability Corporation oversees eightregional reliability entities and isresponsible or establishing and

enorcing mandatory reliabilitystandards or the power grid.

These transmission lines are divided into three

regional grids: one in the East that connects the

Eastern seaboard and the Plains states and Ca-

nadian provinces; another in the West that con-

nects the Pacic coast and the Mountain statesand Canadian provinces; and another that op-

erates in most o Texas. There are very limited

connections between the three grids to help

minimize the impact o disruptions to the system.

The structure o the grid makes reliability pos-

sible, but what makes it a reality is the coordina-

tion in operations o the electric companies thatmake up this network. For the electric power

grid to work smoothly and without disruption, a

transmission operator must be aware not only o

the power fowing over its own system created

by its own generators and the electricity demand

o its customers, but it also must be aware o the

transers o electricity between other systems

and how those transers might fow through its

own system.

To coordinate power fow, control areas have

been ormed. Control areas consisting o one

or several transmission operators ensure that

there is always a balance between electricity

generation and the amount o electricity needed

at any given moment to meet demand. A margino capacity beyond the actual load is needed to

ensure reliability at times o peak demand and

to provide or maintenance down times. Opera-

tors use computerized systems to exercise min-

ute-by-minute control over the network and to

ensure that power transers occur during speci-

ed times in pre-arranged amounts.

R l tiThe


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18 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies

Shareholder-owned electric

companies are highly regulated

at the ederal and state levels.

RegulationShareholder-Owned

Electric Companies

The

of

18


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Although the electric power industry is a diverseone with thousands o suppliers, not all o themare regulated in the same way. Prices chargedby some suppliers, such as shareholder-owned

electric companies, are highly regulated at theederal and state levels; other suppliers, suchas electric cooperatives and government-ownedutilities, are not subject to the same regulatoryrate requirements.

State Regulations

Shareholder-owned electric companies are

regulated by state agencies, typically known as

Public Utility Commissions or Public Service

Commissions. All states regulate rates or the

delivery o electricity to end users (customers)

through distribution wires and related systems.

How the price or electricity is set, however, var-

ies by state.

In the majority o states, rates or electricity

are determined by state regulators using a pro-

cess called cost-o-service ratemaking. This

has been the traditional model governing elec-

tric rates or many decades. However, in the 16

states and the District o Columbia where retail

electric competition programs are in place, the

price or the generation portion o customers billsis set in the competitive market. (Again, in these

states, the local distribution portions o custom-

ers bills are still governed by state regulators.)

Electric companies also are subject to environ-

mental regulations issued by individual states.

And, states have the primary role in approving

the siting o company acilities, including trans-mission acilities that may serve many dierent

states.

Federal Regulations

Shareholder-owned electric companies are also

highly regulated by ederal agencies.

The Federal Power Act (FPA) and the FederalEnergy Regulatory Commission (FERC)

The FPA, enacted in 1935, is the primary ed-

eral law that regulates the shareholder-owned

segment o the electric power industry. The

FPA created the Federal Power Commission

(FPC), which ensured that electricity rates werereasonable, nondiscriminatory, and just to the

consumer. In 1970, the FPCs unctions were

transerred to FERC and the newly created De-

partment o Energy.

Today, FERC regulates the transmission and

sale o electricity in interstate wholesale elec-

tricity markets; utility sales o assets; mergersand acquisitions; and interconnections o cer-

tain acilities. FERC also provides oversight o

grid reliability.

Additionally, FERC regulates interstate trans-

mission and interstate wholesale power transac-

tions, which involve shareholder-owned electric

companies buying or selling electricity rom one

another or rom other power suppliers or resale

to the ultimate customer. FERC has the authority

to regulate the prices, terms, and conditions o

these wholesale power sales and transmission

services. FERC reviews certain mergers and

acquisitions and corporate transactions by

shareholder-owned electric companies.



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FERC also reviews the siting applications or

electric transmission projects under limited

circumstances; licenses and inspects private,

municipal, and state hydroelectric projects;

monitors and investigates energy markets orpossible market manipulation; enorces FERC

regulatory requirements through imposition o

civil penalties and other means; and adminis-

ters accounting and nancial reporting regula-

tions and conduct o regulated companies.

FERC helps to protect the reliability o the high-

voltage interstate transmission system with over-sight authority or mandatory electric reliability

standards, which include cyber security. In 2006,

FERC certied the North American Electric Re-

liability Corporation (NERC) as the Electric Reli-

ability Organizationan independent, sel-reg-

ulating entity created by Congress that enorces

reliability standards.

In 2008, FERC conditionally approved the in-

dustrys rst mandatory cyber security stan-

dards. The standards require users, owners,

and operators o the nations electricity grid to

implement training, physical security, and asset

recovery plans to protect against the threat o

cyber attack. Today, utilities are working to en-

sure that orthcoming cyber security regulationswill promote reliable and cost-eective service.

FERC also has encouraged the ormation o re-

gional transmission organizations (RTOs) and

Independent System Operators (ISOs) to oversee

electricity markets. These organizations help

to run the transmission grid on a regional ba-

sis. There are currently seven RTO/ISO regionsacross the United States.

While FERC has primary jurisdiction over rates

or transmission and interstate wholesale trans-

action by shareholder-owned electric com-

panies, the agency has only very limited juris-

diction over government-owned utilities andelectric cooperatives.

Additional Federal Regulations

The electric power industry must comply with

literally hundreds o environmental regulations,

including dozens o rules created under the ed-

eral Clean Air Act and Clean Water Act. The U.S.Environmental Protection Agency (EPA) has pri-

mary responsibility or developing and enorcing

most ederal environmental regulations. Other

ederal agencies have broad authority over

electric company acilities crossing ederal

lands or aecting unique interests, such as

historical sites or endangered species.

Electric companies also are regulated by the

Federal Communications Commission. Electric

companies are required to allow telecommuni-

cations companies to use electric poles or wires

and other acilities supporting wireless, ber,

broadband, and other communications systems.

The structural integrity, saety, security, and

reliability o utility poles are undamentalcomponents o the nations critical energy

inrastructureand the cost to companies or

maintaining these poles is considerable.


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The shareholder-owned segment o the elec-

tric power industry also must comply with the

many ederal regulations that apply to all U.S.

businesses. These regulations include nan-

cial and accounting requirements rom theSecurities and Exchange Commission and

Commodity Futures Trading Commission; and

anti-trust regulations rom the Department o

Justice and Federal Trade Commission.

Did You

Know?In the 1890s, electric companiesbegan to develop in urbanareas because o economies oscale. By 1907, New York and

Wisconsin began to regulatethese companies. Regulationspread to two-thirds o thestates by 1920, and todayelectric companies areregulated in all 50 states.

Key Facts About The Electric Power Industry 21

P otecti


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22 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies

To generate the electricity we

need, electric companies must

harness the Earths natural

resources. Recognizing that their

operations can have impacts on

the environment, electric companies

work diligently to use resources

eciently as they meet the ever-

growing demands or power.

And, they are always searching

or new and innovative ways to

generate electricityand to use it

wiselywhile also protecting the

environment.

Protecting

Environment

the

22


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Electric companies work hard to protect theenvironment o the communities in which theyoperate. Electric companies spend billions odollars each year on environmental practices,technologies, and operational measures toprotect human health and the environment.As a result, Americas electric generationfeetincluding coal-based power plants thattoday produce nearly 45 percent o the nationselectricityhas become increasingly cleaner overthe last two decades, and will continue to do so.

Likewise, air quality in the United States has

improved dramatically in recent years. In act,since 1990, electric companies have reducedemissions o both NO

Xand SO

2by about 70 per-

cent, while electricity demand has grown by 38percent.

The electric power industry also is working to

reduce CO2

and other greenhouse gas (GHG)

emissions. In the United States, the electric

power industry leads all other industrial sectors

in reducing CO2

emissions. To make signicant

GHG reductions in the uture, the electric power

industry will rely upon a ull suite o environ-

mentally riendly technologies. In addition toadvanced generation technologies, the industry

will utilize energy eciency technologies; mod-

ernize the power grid; and support the deploy-

ment o PEVs.

EPA is proposing a signicant number o rules

that will aect the industrys existing generating

feet over the next several years, as well as elec-tric companies uture plans or meeting electricity

demand. These rules likely will require addi-

tional reductions in NOX, SO

2, mercury, and other

emissions. Going orward, the industry is strongly

committed to urther emissions reductions and to

continued cost-eective environmental protec-

tion as an integral part o generating electricity.

1990 represents the base year. Graph depicts increases or decreases from the base year.

Source: U.S. Department of Energy, Energy Information Administration (EIA).

Utilities Have Substantially Reduced Air EmissionsWhile Increasing Electricity Production

20

40

60

80

100

120

140160

180

200 Index 1990 = 100

Real GDP h65%

Electricity Use h38%

NOX Emissions i68%

SO2 Emissions i67%

1

990

2

010

1

991

1

992

1

993

1

994

1

995

1

996

1

997

1

998

1

999

2

000

2

001

2

002

2

003

2

004

2

005

2

006

2

007

2

008

2

009


Financial SideThe


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24 | Key Facts About The Electric Power Industry The Financial Side of the Electric Power Industry

Financial SideTheof the

Electric Power Industry

From a nancial perspective, the

shareholder-owned sector o the

electric power industry is vastly

dierent rom electric coopera-

tives and government-owned utili-

ties because it relies more heavily

on the private sector or invest-

ment capital needed to nance its

operations.

24


31/36

In 2010, the electric power industry produced$372 billion in revenue rom sales to ultimatecustomers.7 In our nations economy, the elec-tric power industry represents three percent oreal gross domestic product (GDP).

However, customer revenues alone cannot

nance all the plants, acilities, and equipment

needed to provide electric service. Electric com-

panies raise additional money by issuing stock

and selling debt securities. This nancing, called

capitalization, takes three orms: long-term

debt, common stock, and a very small amount o

preerred stock (less than one percent). Electric

companies attempt to implement an appropriate

balance o debt (bonds) and equity (stock) that

matches the risk prole o their investors.

From an investment perspective, millions o

Americans traditionally have relied on the mod-

est, steady growth o utility stocks to supple-

ment their income. Most utility shareholders are

50 years old or older and earn $100,000 or less

annually.8 Investors in electric companies greatly

benetted rom the Jobs and Growth Tax Recon-

ciliation Act o 2003, which temporarily reduced

to 15 percent the maximum tax rate on dividend

income. Congress extended the reduced tax rate

in 2006 and again in 2010. The reduced tax rateis now eective through 2012.

Lower dividend tax rates make dividend-paying

stocks more attractive to investors. This helps

to lower companies cost o capitali.e., ewer

new shares o stock need to be issued to raise

the same o amount o new capital. By attract-

ing new investment in utility shares, electriccompanies are able to raise the capital needed

or major transmission, distribution, and smart

grid system upgrades; new, cleaner generat-

ing capacity; and environmental and energy-

eciency improvements. Looking orward, the

industrys capital expenditures are orecasted to

be approximately $80 billion to $85 billion per

year, or double their 2004 level. These invest-

ments will help to ensure a reliable supply o

electricity to customers and continued environ-mental improvements in the uture. And, these

capital improvement programs oer an impor-

tant source o much-needed, high-quality job

creation in many states.

Shareholder-owned electric companies also

contribute substantially to the nations tax base

through ederal, state, and other local taxes, suchas property taxes. For the year ended December

31, 2010, shareholder-owned electric companies

incurred a total o $31.7 billion in taxes.

7 Unless otherwise noted, all financial data in this section comes from EEIs2010 Financial Review.

8 Ernst & Young, The Beneficiaries of the Dividend Tax Rate Reduction, Prepared

for the Edison Electric Institute and the American Gas Association,January 2010.


Did You

Know?The electric power industry isamong the most capital-intensiveindustries in the world.

P i A i


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26 | Key Facts About The Electric Power Industry Powering Americas Electric Future

The electric power industry is

working to transorm the way

that people think about and use

electricity. Everything the industry

is doing todayrom building

a cleaner generation feet to

modernizing the grid to advancing

electric transportation in all

ormsis setting the stage to

ensure that America has the elec-

tricity it needs to power its uture.

Powering Americas

Electric Future

26


33/36

The great challenge acing the electric power in-dustry is the need to supply aordable, reliable,and environmentally sustainable electricity to acountry that is growing in both population andstandard o living. To meet this challenge, theindustry is transorming how electric companiesgenerate and deliver electricity, and how cus-tomers use it. The industry also is committedto training a new generation o workers to helpmeet our nations uture energy needs.

Enhancing Energy Efciency

Electric companies have a long and successultrack record o working with their customers

on ways to reduce their electricity usage and to

control their energy bills with energy-eciency

programs. Today, electric companies are pro-

moting a variety o innovative business and reg-

ulatory approaches that will encourage the use

o state-o-the-art eciency technologies andservices. They also are pursuing a wide range

o opportunities to improve energy eciency

such as improving the eciency o buildings

and appliances, accelerating the development

o advanced metering inrastructure and smart

meters, advancing more ecient distribution

transormers, and encouraging the develop-

ment o PEVs.

While it is necessary to add signicant new gen-

erating capacity in order to meet the demands

o the economy and a growing population, en-

ergy eciency can help to oset some o that

demand. In many ways, energy eciency can

be considered another uel. However, state

regulations generally compensate electric com-

panies based on electricity sales. To truly trans-

orm the role o energy eciency in the UnitedStates, new business models that consider

energy eciency as a resource are needed.

Modernizing the Grid

The electric power industry is modernizing the

nations electric grid by incorporating telecom-

munications and inormation technology in-rastructure into utility operations. These new

capabilities will provide electric companies and

customers greater control over electricity use.

By modernizing the grid, the industry is creat-

ing a platorm or new technologies to increase

system reliability and eciency. This modern-

ized grid will provide electric companies with a

nearly real-time situational awareness capabil-

ity, which will increase the industrys resiliency

against physical and cyber attacks.

This new inrastructure platorm will provide

important benets to customers, including

signicant opportunities or energy savings

and a variety o potential new services. For

example, smart meters measure electricity us-

age ar more requently than traditional meters

and can send data to and rom electric compa-

nies and their customers.



34/36

Electric Transportation

Electricity is a domestically produced transpor-

tation uel that will transorm our nations trans-

portation sector. PEVs will help our country to

reduce its dependence on oreign oil; to create

new, high-quality American jobs; and to enter

an era o clean transportation. The rst round

o PEVs began arriving in several U.S. markets

at the end o 2010, and the rollout will continue

over the next ew years.

PEVs are plugged in to the existing electricity

system using a 120-volt (V) or 220V/240V outlet

to recharge the car battery. (A 120V-outlet is a

standard household outlet, while a 220V/240V-

outlet is similar to an outlet used or a clothes

dryer.) Owners can recharge their batteries

overnight, using lower-cost, o-peak electricity.

Under this scenario, charging a PEV is compa-

rable to paying $1.00 per gallon or gasoline.The electric power industry is committed to

advancing PEVs and to utilizing electricity as a

transportation uel. The industry is helping to

address the inrastructure needed or widescale

deployment o PEVs, such as the charging op-

tions in homes, businesses, and public areas.

Modernizing our nations electric grid is a keycomponent or large-scale commercialization o

PEVs. Smart grid technology will help PEV own-

ers choose the best time o day to charge their

vehicles and optimize the benets o PEVs.

Training a New Generationo Utility Workers

The electric power industry is ocused on

building a skilled workorce to help meet ournations uture energy needs. EIA projects that

our countrys demand or electricity will increase

31 percent by 2035. To meet this demandand

to account or the projected retirements in the

industryelectric companies will need to hire

skilled workers throughout the country. And,

as the industry utilizes emerging energy tech-

nologies, electric companies are committedto helping workers learn necessary new skills

and advance in their careers. From line work-

ers to customer service operators to electrical

engineers, the electric power industry provides

much-needed, high-quality job opportunities

throughout the country.



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29 | Key Facts About The Electric Power Industry Powering Americas Electric Future


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701 Pennsylvania Ave., N.W. | Washington, D.C. 20004-2696 | 202.508.5000 | www.eei.org

The Edison Electric Institute (EEI) is the association o U.S.shareholder-owned electric companies. Our members serve95 percent o the ultimate customers in the shareholder-

owned segment o the industry, and represent approximately70 percent o the U.S. electric power industry. We alsohave as Aliate members more than 80 International elec-tric companies, and as Associate members more than 200industry suppliers and related organizations.

Organized in 1933, EEI works closely with all o its mem-bers, representing their interests and advocating equitablepolicies in legislative and regulatory arenas.

EEI provides public policy leadership, critical industry data,strategic business intelligence, one-o-a-kind conerencesand orums, and top-notch products and services.

For more inormation, visit our Web site at www.eei.org.

October 2011

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Key Facts About Electric Power Industry