The Changing Structure of the Electric Power Industry 2000: An Update

This chapter describes major Federal legislation that has shaped the electric power industry since the 1930s. It begins by detailing three Acts that have had the most profound effects on the industry's structure--the Public Utility Holding Company Act of 1935 (PUHCA), the Public Utility Regulatory Policies Act of 1978 (PURPA),⁽¹⁾ and the Energy Policy Act of 1992 (EPACT), which led to the issuance of Orders 888 and 889 by the Federal Energy Regulatory Commission (FERC). The remainder of the chapter lists and summarizes other laws which have affected the industry throughout the years. Appended to the end of the chapter is a list of major Supreme Court cases which also have had an impact.

The Public Utility Holding Company Act, enacted in 1935, was aimed at breaking up the unconstrained and excessively large trusts that then controlled the Nation's electric and gas distribution networks. They were accused of many abuses, including "control of an entire system by means of a small investment at the top of a pyramid of companies, sale of services to subsidiaries at excessive prices, buying and selling properties within the system at unreasonable prices, intra-system loans at unfair terms, and the wild bidding war to buy operating companies." ⁽²⁾

Although more than 100 holding companies existed before PUHCA, almost half of all electricity generated in the United States was controlled by three huge holding companies.⁽³⁾ The size and complexity of these huge trusts made industry regulation and oversight control by the States impossible. After the collapse of several large holding companies, the Federal Trade Commission (FTC) conducted an investigation after which it criticized the many abuses that tended to raise the cost of electricity to consumers. The Securities and Exchange Commission (SEC) also investigated and " publicly charged that the holding companies had been guilty of '. . . stock watering and capital inflation, manipulation of subsidies, and improper accounting practices.' The general counsel of the FTC went further, claiming that '[w]ords such as fraud, deceit, misrepresentation, dishonesty, breach of trust, and oppression are the only suitable terms to apply.' " ⁽⁴⁾

Under PUHCA, the SEC was charged with the administration of the Act and the regulation of the holding companies. One of the most important features of the Act was that the SEC was given the power to break up the massive interstate holding companies by requiring them to divest their holdings until each became a single consolidated system serving a circumscribed geographic area. Another feature of the law permitted holding companies to engage only in business that was essential and appropriate for the operation of a single integrated utility. This latter restriction practically eliminated the participation of nonutilities in wholesale electric power sales. The law contained a provision that all holding companies had to register with the SEC, which was authorized to supervise and regulate the holding company system. Through the registration process, the SEC decided whether the holding company would need to be regulated under or exempted from the require ments of the Act. The SEC also was charged with regulating the issuance and acquisition of securities by holding companies. Strict limitations on intrasystem transactions and political activities were also imposed.⁽⁵⁾

The holding companies at first resisted compliance, and some challenged the constitutionality of the Act, but the Supreme Court upheld PUHCA's legality. By 1947, virtually all holding companies had undergone some type of simplification or integration, and by 1950 the utility reorganizations were virtually complete.⁽⁶⁾ As of December 31, 1998, there were only 15 registered holding companies in the Unites States (Table 6). Additionally, there were 53 holding companies exempt from SEC regulation by SEC order, and 112 holding companies exempt since they fell under the umbrella of PUHCA Section 3 (a) (1) and/or (2), which states:

The Commission . . . shall exempt any holding company, and every subsidiary company thereof . . . from any . . . provisions of this title . . . unless it finds the exemption detrimental to the public interest or the interest of investors or consumers if--(1) such holding company, and every subsidiary company thereof . . . are predominantly intrastate in character and carry on their business substantially in a single State in which such holding company and every such subsidiary company thereof are organized; (2) such holding company is predominantly a public utility company whose operations . . . do not extend beyond the State in which it is organized and States contiguous thereto.⁽⁷⁾

Although PUHCA reform or outright repeal is being considered today because of the move to restructure (see Chapter 6), the same plea for change has been made several times over the past 20 years. In the 1970s, utilities sought relief from PUHCA constraints to diversify into nonutility lines of business as a means to improve their declining profits. In the 1980s, they sought to diversify to exploit the positive experience of independent power producers under PURPA, which eliminated PUHCA constraints on certain qualifying generating facilities. It was not until 1992 that EPACT significantly modified PUHCA by allowing both utilities and nonutilities to build, own, and operate power plants for wholesaling electricity in more than one geographic area. A more detailed discussion of the effects of PURPA and EPACT on PUHCA provisions follows.

In October 1973, Nations of the Organization of Petroleum Exporting Countries (OPEC) imposed a ban on oil exports to the United States. Although the ban lasted only until March 1974, its effects increased public awareness of energy issues, resulted in higher energy prices, contributed to inflation, and acted as a catalyst for the proposal and adoption of the National Energy Act. This Act, which was signed into law in November 1978, comprises five different statutes: PURPA, the Energy Tax Act, the National Energy Conservation Policy Act, the Powerplant and Industrial Fuel Use Act, and the Natural Gas Policy Act. The general purpose of the National Energy Act was to ensure sustained economic growth while also permitting the economy time to make an orderly transition from the past era of inexpensive energy resources to a period of more costly energy.⁽⁸⁾ Although it had numerous objectives, a primary goal of the National Energy Act was to reduce the Nation's dependence on foreign oil and its vulnerability to interruptions in energy supply. Another was to develop renewable and alternative energy sources.

The most significant part of the National Energy Act of 1978 with regard to the structure of the electric power industry was PURPA, specifically, Section 2 of the Act:

The Congress finds that the protection of the public health, safety, and welfare, the preservation of national security, and the proper exercise of congressional authority under the Constitution to regulate interstate commerce require--

(1) a program providing for increased conservation of electric energy, increased efficiency in the use of facilities and resources by electric utilities, and equitable retail rates for electric consumers,

(2) a program to improve the wholesale distribution of electric energy, the reliability of electric service, the procedures concerning consideration of wholesale rate applications before the Federal Energy Regulatory Commission, and to provide other measures with respect to the regulation of the wholesale sale of electric energy,

(3) a program to provide for the expeditious development of hydroelectric power . . .⁽⁹⁾

Section 210 of PURPA requires electric utilities to interconnect with and buy whatever amount of capacity and energy is offered from any facility meeting the criteria for a qualifying facility (QF) (see inset). It further requires that the utility pay for that power at the utility's own incremental or avoided cost of production.⁽¹⁰⁾ This provision created a market in which QFs could unilaterally sell electricity to utilities. To further ease the burden on nonutility companies wishing to enter the electric generating market, Congress exempted most QFs from rate and accounting regulation by FERC under the Federal Power Act, from regulation by the SEC under PUHCA, and from State rate, financial, and organizational regulation of utilities. It also simplified contracts, streamlined the power sales process, increased financial certainty for creditors and equity sponsors, and generally eliminated several procedural and planning problems that had made entry into the electricity market prohibitive for most of the smaller energy producers.⁽¹¹⁾

In enacting PURPA, Congress ensured that QFs had a guaranteed market for their power at a price equal to the avoided cost of the utilities that purchased their power. This is quite different from traditional regulation, which generally sets the price of electricity on the basis of the cost (to the producer) of producing it. The QFs themselves are not subject to cost-of-service regulation, and the prices paid to them are not based on their cost of producing the electricity. Instead, the prices they are paid reflect the avoided cost of the purchasing utility, that is, the cost the utility avoided by not producing the electricity received from the QF or purchasing it from another source. One initial interpretation of avoided cost under PURPA was the cost of additional electricity produced by the utility itself. However, under PURPA's requirements, some utilities had to purchase QF generation even though they already had sufficient supply available to meet demand, either through their own generation or through purchases from other sources.

PURPA Qualification Criteria
PURPA was designed to encourage the efficient use of fossil fuels in electric power production through cogenerators and the use of renewable resources through small power producers. There is no size limitation for an eligible solar, wind, or waste facility, as defined by section 3(17) (E) of the Federal Power Act. For a non-eligible facility, the power production capacity for which qualification is sought may not exceed 80 megawatts. (Under PURPA provisions, both cogenerators and small power producers cannot have more than 50 percent of their equity interest held by an electric utility.) ^a
Cogenerators Cogenerators are generators that sequentially or simultaneously produce electric energy and another form of energy (such as heat or steam) using the same fuel source. Cogeneration technologies are classified as " topping-cycle " and " bottoming-cycle " systems. In a typical topping-cycle system, high-temperature, high-pressure steam from a boiler is used to drive a turbine to generate electricity. The waste heat or steam exhausted from the turbine is then used as a source of heat for an industrial or commercial process. In a typical bottoming-cycle system, high-temperature thermal energy is produced first for applications such as reheat furnaces, glass kilns, or aluminum metal furnaces, and heat is then extracted from the hot exhaust stream of the primary application and used to drive a turbine. Bottoming-cycle systems are generally used in industrial processes that require very high-temperature heat. For a nonutility to be classified as a cogenerator qualified under PURPA, it must meet certain ownership, operating, and efficiency criteria established by FERC. The operating requirements stipulate the proportion (applicable to oil-fired facilities) of output energy that must be thermal energy, and the efficiency requirements stipulate the maximum ratio of input energy to output energy.	Renewables A renewable resource is an energy source that is regenerative or virtually inexhaustible. Renewable energy includes solar, wind, biomass, waste, geothermal, and water (hydroelectric). Solar thermal technology converts solar energy through high concentration and heat absorption into electricity or process energy. Wind generators produce mechanical energy directly through shaft power. Biomass energy is derived from hundreds of plant species, various agricultural and industrial residues, and processing wastes. Industrial wood and wood waste are the most prevalent form of biomass energy used by nonutilities. Geothermal technologies convert heat naturally present in the earth into heat energy and electricity. Hydroelectric power is derived by converting the potential energy of water to electrical energy using a hydraulic turbine connected to a generator. For a nonutility to be classified as a small power producer under PURPA, it also must meet certain ownership and operating criteria established by FERC. In addition, renewable resources must provide at least 75 percent of the total energy input. PURPA provisions enabled nonutility renewable electricity production to grow significantly, and the industry responded by improving technologies, decreasing costs, and increasing efficiency and reliability.
^aFor further information regarding criteria, refer to http://frwebgate.access.gpo.gov.

In the mid-1980s, several States began to review their own and others' experiences with PURPA implementation. Maine, in particular, concluded that avoided costs could be established through competitive bidding among QFs, as opposed to setting them administratively. In 1984, Central Maine Power (CMP) and the Maine Public Service Commission (PSC) became the first to put competitive bidding into practice. CMP did this in an effort to protect itself from oversupply of electricity by QFs after the PSC had previously decided that avoided-cost rates for QFs were to be based on the cost of production of electricity by nuclear facilities. These high rates spurred a larger volume of offers than CMP needed. The switch to market-based pricing provided a new avoided cost for purchased power from QFs that was below the initial avoided cost levels that would have prevailed in the absence of bidding.⁽¹²⁾

In 1992, President George Bush signed the Energy Policy Act (EPACT). The Act substantially reformed PUHCA and made it even easier for nonutility generators to enter the wholesale market for electricity by exempting them from PUHCA constraints. The law created a new category of power producers, called exempt wholesale generators (EWGs).⁽¹³⁾ By exempting them from PUHCA regulation, the law eliminated a major barrier for utility-affiliated and nonaffiliated power producers who want to compete to build new non-rate-based power plants. EWGs differ from PURPA QFs in two ways. First, they are not required to meet PURPA's cogeneration or renewable fuels limitations. Second, utilities are not required to purchase power from EWGs. Marketing of EWG power has come to be facilitated by transmission provisions that gave FERC the authority to order utilities to provide access to their transmission systems.

The law has been hailed by industry analysts as one of the most significant pieces of legislation in the history of the industry. In addition, the law amended the wholesale transmission provisions of the Federal Power Act. These transmission provisions have led to a nationwide open-access electric power transmission grid for wholesale transactions. (The law specifically prohibits FERC from ordering retail wheeling--the transmission of power to a final customer.) Independent power producers, publicly owned utilities, rural cooperatives, and industrial producers (i.e., anyone selling power at wholesale) gained the ability to seek from FERC orders that require transmission-owning utilities to provide transmission service at FERC-defined " just and reasonable " rates.

The language of the law concerning pricing directs FERC, when it issues a transmission order, to approve rates which permit the utility to recover " all legitimate, verifiable economic costs incurred in connection with the transmission services. " Such costs include " an appropriate share, if any, [of] necessary associated services, including, but not limited to, an appropriate share of any enlargement of transmission facilities. " The language also says that FERC " shall ensure, to the extent practicable, " that costs incurred by the wheeling utility are recovered from the transmission customer rather than " from a transmitting utility's existing wholesale, retail, and transmission customers. "

Probably the most salient characteristics of EPACT were the expansion of FERC's authority and the creation of EWGs that were exempt from SEC regulation. A bitter dispute was in the area of transmission access. Some nonutility groups had argued that not revising transmission-access rules would reinforce the utility monopolistic structure. The main thrust of the argument against these transmission access authority revisions was that the high level of reliability enjoyed by the Nation would be compromised.

Although regulated public utilities had no general obligation to provide access to their transmission lines before EPACT, there are several restricted exceptions to this generalization. One is the requirement, under PURPA, that utilities interconnect with and purchase power from QFs. Another is that under the Federal Power Act, as amended by PURPA, FERC had the authority to require wheeling under limited circumstances. But, in its first deliberation on this authority, FERC found that the authority was limited so that it did not allow FERC to require a utility to wheel power to its wholesale customers or to encourage competition in bulk power markets.⁽¹⁴⁾ This interpretation of PURPA circumscribed the conditions under which FERC could order wheeling but FERC's interpretation was later upheld by the courts. The enactment of EPACT in 1992 broadened FERC's authority to order utilities to provide wheeling over their transmission systems to utilities and nonutilities . In addition, anti-trust laws and analyses have been used to require access to transmission and generation capacity. FERC's implementation of EPACT and open transmission access is discussed in Chapter 7.

The following table lists Federal legislation which has impacted the electric power industry since 1933.

Major Federal Legislation Affecting the Electric Power Industry

Tennessee Valley Authority Act of 1933

(Public Law 73-17)

Under this law, the Federal Government provided electric power to States, counties, municipalities, and nonprofit cooperatives. It was the steady continuation of Federal initiatives to provide navigation, flood control, strategic materials for national defense, electric power, relief of unemployment, and improvement of living conditions in rural areas. The Tennessee Valley Authority (TVA) was also authorized to generate, transmit, and sell electric power. With regard to the sale of electric power, the TVA is authorized to enter into contracts up to 20 years for sales to governmental and private entities, to construct transmission lines to areas not otherwise supplied with electricity, to establish rules and regulations for power sales and distribution, and to acquire existing electric facilities used in serving certain areas.

Public Utility Holding Company Act of 1935 (PUHCA)

(Public Law 74-333)

PUHCA was enacted to remedy utility industry abuses facilitated by the holding company structure. PUHCA gave the Securities and Exchange Commission the authority to oversee utility holding companies pursuant to the extensive set of regulations provided by the Act.

Federal Power Act of 1935 (Title II of PUHCA)

(Aug. 26, 1935, ch. 687, Title II, 49 Stat. 838)

This Act was passed to provide for a Federal mechanism for interstate electricity regulation.

Rural Electrification Act of 1936

(Public Law 74-605)

This Act established the Rural Electrification Administration (REA) to provide loans and assistance to organizations providing electricity to rural areas and towns with populations under 2,500. REA cooperatives are generally associations or corporations formed under State law. The predecessor to this Act was the Emergency Relief Appropriations Act of 1935, which performed the same function.

Bonneville Project Act of 1937

(Public Law 75-329)

This Act created the Bonneville Power Administration (BPA), which pioneered the Federal power marketing administrations. The BPA was accountable for the transmission and marketing of power produced at Federal dams in the Northwest. In 1953, the BPA first guaranteed the bonds of and a market for small energy facilities built and financed by public utility districts.

Reclamation Project Act of 1939

(Public Law 76-260)

This Act requires that rates for electric power generated at Federal hydroelectric projects be sufficient to recover an appropriate share of annual operation and maintenance costs and an appropriate share of construction costs, to include interest charged at a rate of not less than 3 percent.

Flood Control Act of 1944

(Public Law 78-534)

This Act formed the basis for the later creation of the Southeastern Power Administration (SEPA) ^a in 1950 to sell power produced by the U.S. Army Corps of Engineers in the Southeast; and the Alaska Power Administration (APA) ^b in 1967 to both operate and market power from two hydroelectric plants in Alaska: the Eklutna Project and the Snettisham Project. Although the Southwestern Power Administration's (SWPA) ^c authority after World War II came from the Flood Control Act of 1944, it was established using the Executive Branch's emergency war powers authority to satisfy the growing demands from weapons development and domestic needs. This Act also demands that rates for electric power be enough to recover the cost of "producing and transmitting such electric energy." ^d

First Deficiency Appropriation Act of 1949

(Public Law 81-71)

The Act authorized the Tennessee Valley Authority to construct thermal-electric power plants for commercial electricity sale.

Energy Supply and Environmental Coordination Act of 1974 (ESECA)

(Public Law 93-319)

This Act allowed the Federal Government to prohibit electric utilities from burning natural gas or petroleum products.

DOE Organization Act of 1977

(Public Law 95-91)

In addition to forming the Department of Energy (including the Federal Energy Regulatory Commission), this Act provided authority for the establishment of the Western Area Power Administration (WAPA) ^e and transferred power marketing responsibilities and transmission assets previously managed by the Bureau of Reclamation to WAPA. WAPA's authority was extended through the Hoover Power Plant Act of 1984. This Act also transferred the other four power marketing administrations (PMAs)--the Southeastern Power Administration, the Southwestern Power Administration, the Alaska Power Administration, and the Bonneville Power Administration--from the Department of the Interior to the Department of Energy.

National Energy Act of 1978

(Public Law 95-617 - 95-621)

This Act was signed into law in November 1978 and includes five different statutes: the Public Utility Regulatory Policies Act (PURPA), the Energy Tax Act (Public Law 95-618), the National Energy Conservation Policy Act (Public Law 95-619), the Powerplant and Industrial Fuel Use Act (Public Law 95-620), and the Natural Gas Policy Act (Public Law 95-621). Passed in the wake of the oil-producing nations' ban on oil exports to the United States and retail oil price increases, its general purpose was to ensure sustained economic growth while also permitting the economy time to make an orderly transition from the past era of inexpensive energy resources to a period of more costly energy.

Public Utility Regulatory Policies Act of 1978 (PURPA)

(Public Law 95-617)

PURPA was passed in response to the unstable energy climate of the late 1970s. PURPA sought to promote conservation of electric energy. Additionally, PURPA created a new class of nonutility generators, small power producers, from which, along with qualified cogenerators, utilities are required to buy power. Further, PURPA gave FERC the authority to order wheeling under the FPA.

Energy Tax Act of 1978 (ETA)

(Public Law 95-618)

This Act, like PURPA, was passed in response to the unstable energy climate of the 1970s. The ETA encouraged conversion of boilers to coal and investment in cogeneration equipment and solar and wind technologies by allowing a tax credit on top of the investment tax credit. It was later expanded to include other renewable technologies. However, the incentives generally were curtailed as a result of tax reform legislation in the mid-1980s.

National Energy Conservation Policy Act of 1978

(Public Law 95-619)

This Act required utilities to develop residential energy conservation plans to encourage slower growth of electricity demand.

Powerplant and Industrial Fuel Use Act of 1978

(Public Law 95-620)

This Act succeeded the Energy Supply and Environmental Coordination Act of 1974, and extended Federal prohibition on the use of natural gas and petroleum in new electric power plants.

Pacific Northwest Electric Power Planning and Conservation Act of 1980

(Public Law 96-501)

This Act created the Pacific Northwest Electric Power and Conservation Council to coordinate the conservation and resource acquisition planning of the Bonneville Power Administration (BPA). The Act also provides for BPA to purchase and exchange electric power with Northwest utilities at the " average system cost. " Approval of the methodology for determining " average system cost " is required. This Act also gave the BPA the authority to plan for and acquire additional power to meet its growing load requirements.

Economic Recovery Tax Act of 1981

(Public Law 97-34)

This Act introduced a new methodology for determining allowable tax depreciation deductions. The new methodology, the Accelerated Cost Recovery System (ACRS), set forth rules enabling taxpayers to claim generous depreciation deductions based on the system's permitted depreciable life, method, and salvage value assumptions. The generation, transmission, and distribution plants of regulated electric utilities were categorized as public utility property. Public utility property under ACRS was assigned relatively long depreciable lives.

Electric Consumers Protection Act of 1986 (ECPA)

(Public Law 99-495)

This Act was the first significant amendment to the hydro licensing provisions of the FPA since 1935. " The amendments have made four principal changes to Part I of the FPA. First, the municipal preference on relicensing has been eliminated. Second, the importance of environmental considerations in the licensing process has been greatly increased and the role of the State and Federal fish and wildlife agencies is expanded. Third, PURPA benefits for hydroelectric projects at new dams and diversions were eliminated unless the projects satisfy stringent environmental conditions. Finally, FERC's enforcement powers have been increased substantially. " ^f

Tax Reform Act of 1986

(Public Law 99-514)

Under this Act, ACRS was replaced with the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, the disparity in treatment of property between regulated and nonregulated taxpayers was eliminated. The investment credit was also repealed. The investment credit of the Federal income tax law was a dollar-to-dollar offset against the taxes payable by the taxpayer. The investment credit was available for regulated and nonregulated taxpayers and was intended to encourage capital investment by the Nation's businesses. The credit continues to be of importance to regulated utilities, however, because it is generally amortized for ratemaking and financial reporting purposes over the regulatory life of the related property that gave rise to the credit.

Clean Air Act Amendments of 1990 (CAAA)

(Public Law 101-549)

These Amendments established a new emissions-reduction program. The goal of the legislation was to reduce annual sulfur dioxide emissions by 10 million tons and annual nitrogen oxide emissions by 2 million tons from 1980 levels for all man-made sources. Generators of electricity will be responsible for large portions of the sulfur dioxide and nitrogen oxide reductions. The program instituted under the Clean Air Act Amendments of 1990 employs a unique, market-based approach to sulfur dioxide emission reductions, while relying on more traditional methods for nitrogen oxide reductions.

Energy Policy Act of 1992 (EPACT)

(Public Law 102-486)

This Act created a new category of electricity producer, the exempt wholesale generator, which narrowed PUHCA's restrictions on the development of nonutility electricity generation. The law also authorized FERC to open up the national electricity transmission system to wholesale suppliers.

   ^a SEPA markets power in West Virginia, Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Tennessee, and Kentucky. SEPA is unique from the other marketing authorities because it does not own any transmission lines.
   ^b The APA and the TVA are the only two Federal marketing organizations that operate their own plants.
   ^c SWPA markets power in Arkansas, Kansas, Louisiana, Missouri, Oklahoma, and Texas.
   ^d Energy Information Administration, Financial Statistics of Major U.S. Publicly Owned Electric Utilities 1994, DOE/EIA-0437(94)/2 (Washington, DC, December 1995), p. 458.
   ^e The territory served by WAPA includes 15 Central and Western States of Arizona, California, Colorado, Iowa, Kansas, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Texas, Utah, and Wyoming. The WAPA's authority was lengthened through the Hoover Power Plant Act of 1984 to constrain customer utilities to address certain conservation activities and to retain a part of customers' power allocations if they did not follow.
   ^f D. J. Muchow and W. A. Mogel, Energy Law and Transactions (Matthew Bender, April 1996), p. 53-20.
   Note: Although it is not a law, the Uniform Division of Income for Tax Purposes Act (UDITPA)--which provides that the sale of electricity is sourced for apportionment purposes to the ultimate destination State--has been adopted in some form by 44 States from a total of 47 States that impose a corporate income tax. Public laws before 1935 were sourced differently than those after 1935. For more information on the power marketing administrations, refer to Energy Information Administration, Financial Statistics of Major U.S. Publicly Owned Electric Utilities 1994, DOE/EIA-0437(94)/2 (Washington, DC, December 1995).
   Source: This inset is based on information compiled by the Office of Coal, Nuclear, Electric and Alternate Fuels from various documents. These documents include Congressional Quarterly as well as others published by the following organizations: the Congressional Research Service, Government Institutes, Inc., the Council on Environmental Quality, the General Accounting Office, and the Federal Energy Regulatory Commission. Also refer to D. J. Muchow and W. A. Mogel, Energy Law and Transactions (Matthew Bender, April 1996).

In addition to the preceding statutory background regarding the electric power industry, the inset below provides a synopsis of a related subject--U.S. Supreme Court cases and decisions that have had major impacts on the industry.

Major U.S. Supreme Court Cases Affecting the Electric Power Industry ^a
Court Case	Date	Decision
Munn v. Illinois (94 U.S. 113)	1877	The Supreme Court establishes the rights of government to regulate and set rates for companies that provide vital public services in a business environment.
Smyth v. Ames ( 169 U.S. 466)	1898	The Supreme Court decrees just compensation on fair value. The decision in this case upheld the right of the State to regulate the prices charged to the public by a business "affected with a public interest."
Rhode Island PUC v. Attleboro (273 U.S. 83)	1927	The Supreme Court declares that selling electricity interstate cannot be regulated by a State.
Ashwander v. TVA (297 U.S. 288)	1936	The Supreme Court upholds the constitutionality of the Tennessee Valley Authority.
Electric Bond & Share v. SEC (303 U.S. 419)	1938	The Supreme Court upholds the Public Utility Holding Company Act of 1935.
Tennessee Electric Power Co. v. Tennessee Valley Authority (306 U.S. 118)	1939	The Supreme Court rules in TVA's favor, despite the claims that TVA threatened the large investments already made by privately owned utilities. This ruling resulted in TVA becoming a major electricity supplier in the region.
F.P.C. v. Hope Natural Gas (320 U.S. 591)	1944	The Supreme Court closes a longstanding dispute by allowing either original or replacement cost accounting in utility rate making, so long as just and reasonable rates result.
Otter Tail Power Co. v. United States (410 U.S. 366)	1973	The Supreme Court upholds finding that Otter Tail Power Co. violated Section 2 of the Sherman Act by refusing to sell or wheel wholesale power to proposed municipal systems.
FPC v. Conway Corp. (426 U.S. 271)	1976	The Supreme Court states that FERC, in setting wholesale rates, must consider allegations that the proposed rates are discriminatory and anticompetitive in effect.
FERC v. Mississippi (456 U.S. 742)	1982	The Supreme Court upholds the constitutionality of PURPA in regards to its preemptive effect on the States' authority.
American Paper Institute v. American Electric Power Service Corp. (461 U.S. 402)	1983	The Supreme Court upholds the constitutionality of FERC's cogeneration rules promoted pursuant to PURPA.
Nantahala Power & Light Co. v. Thornburg (476 U.S. 953)	1986	Among other outcomes, the Supreme Court confirms that FERC has exclusive authority over wholesale electric rates.
Mississippi Power & Light Co. v. Mississippi ^b (487 U.S. 354)	1988	The Supreme Court determines that FERC authority is controlling and that a State commission is obligated to honor a FERC order. The Court stated " FERC-mandated allocations of power are binding on States, and States must treat those allocations as fair and reasonable when determining retail rates. " ^c
Duquesne Light Co. v. Barasch ^d (488 U.S. 299)	1989	" U.S. Supreme Court held that absent any showing that a State's rate- making methodology results in unreasonable rates that throw into jeopardy the financial integrity of the utilities or otherwise fail to compensate shareholders for their risks of investment, no impermissible taking exists. Further, the Constitution of the United States does not mandate any particular rate-making methodology for State regulatory commissions. " ^e
^a This inset highlights the major U.S. Supreme Court cases that affect the electric power industry, stating the final decision of the Court without discussing in detail the contents of the case. ^b This case, Mississippi Power & Light Co. v. Mississippi, continues the holding found by the U.S. Supreme Court in the Nantahala Power & Light Co. v. Thornburg case. ^c W. F. Fox, Jr., Regulatory Manual Series: Federal Regulation of Energy (Shepard's/McGraw-Hill, Inc., 1993), p. 149. ^d This case is a final construction work in progress (CWIP) case. FERC issued a CWIP rule effective July 1, 1983. This means that a utility may include, in its rate base, up to 50 percent of its CWIP costs for ongoing construction projects and for the costs of nuclear fuel in the process of fuel refinement, conversion, enrichment, and fabrication. In addition, the rule continues to permit utilities to include all CWIP costs associated with pollution control and fuel conversion facilities. See W. F. Fox, Jr., Regulatory Manual Series: Federal Regulation of Energy (Shepard's/McGraw-Hill, Inc., 1993), p. 150. ^e W. F. Fox, Jr., Regulatory Manual Series: Federal Regulation of Energy (Shepard's/McGraw-Hill, Inc., 1993), p. 153. FERC = Federal Energy Regulatory Commission. TVA = Tennessee Valley Authority. PG&E = Pacific Gas & Electric Company. PURPA = Public Utility Regulatory Policies Act. PUC = Public Utility Commission. Source: This inset is based on information compiled by the Office of Coal, Nuclear, Electric and Alternate Fuels from various documents from the Department of Energy Library. For more information, refer to D. J. Muchow and W. A. Mogel, Energy Law and Transactions (Matthew Bender, April 1996); and W. F. Fox, Jr., Regulatory Manual Series: Federal Regulation of Energy (Shepard's/McGraw-Hill, Inc., 1993).

14. Southeastern Power Administration v. Kentucky Utilities Company, 25 FERC � 61,204 (1983).