Electric KeyFacts

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KEY FACTS

Electric Power

Industry

about

the


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The electric power industry is an $840-billion industry thatpowers our economy and enhances our everyday lives.

In our nations economy, the electric power industryrepresents approximately 3 percent of real gross domesticproduct.

Americas shareholder-owned electric companies employmore than 500,000 workers.

Nearly 70 percent of industries, American businesses,and consumers are served by shareholder-owned electriccompanies.

continuesp

Know?Did You


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Today the typical U.S. home has, on average, at least 25 elec-

tronic products99 percent of which must be plugged in orrecharged.

Fuel diversity is key to reliable and affordable electricity.Electric companies use a variety of fuels to generate elec-tricity, and tend to use the fuels that are most cost-effective

and readily available in their region.

Since 1990, electric companies have reduced emissions ofnitrogen oxides (NOx) by 76 percent and sulfur dioxide (SO

2)

by 79 percent, while electricity use has increased 36 percent.

The electric power industry is developing advanced technologiesto generate electricity more cleanly and efficiently.

Know?

Did You


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In the United States, the electric power industry leads allother industrial sectors in reducing carbon dioxide (CO

2)

emissions.

Millions of Americans invest directly and indirectly inthe electric power industry and rely on dividends and thesteady growth of utility stocks to supplement their income.

The electric power industry is the most capital-intensive industryin the United Statesit is projected to spend approximately $85billion a year through 2015 for major transmission, distribution,and smart grid system upgrades; new, cleaner generation ca-pacity; and environmental and energy-efficiency improvements.

Electric companies are investing in energy efficiency and arepromoting innovative options for making energy efficiency partof their business model.


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KEY FACTSElectric Power

Industry

KEY FACTSElectric Power

Industry

about

the


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Table of 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

1Edison Electric Institute (EEI). Industry size as measured by net property, plant, and equipment as of December 31, 2012.

The electric power industry is an $840-billion industry1that provides a vitalservice to modern life. Electricity helps to grow our economy and to improveour standard of living.

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

Today, electric companies are transforming the way they produce power anddeliver electricity to customers. These companies are utilizing new technol-ogies that empower customers to use electricity more wisely, which reducesthe need for new generation. And, they are investing in control technologiesto reduce emissions at existing power plants, while building new facilitiesthat use cleaner technologies.

Going forward, electricity will play an increasingly larger role in trans-forming our transportation sector. A new generation of electric vehicles(EVs), and the ongoing electrification of industrial, fleet and non-road vehicles,will help the nation enter an era of clean transportation and reduce itsdependence on foreign oil. Diversifying the transportation sectors fuel mixalso will enhance U.S. energy and economic security.


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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 for nearly everything we do.

Since Thomas Edisons first

power plant lit up 800 light bulbs

in New York City on the evening of

September 4, 1882, electricityhas become our most prevalent

energy form. It drives our nations

economy and powers smart

technologies that enhance our

quality of life.

of

2


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2U.S. Department of Energy, Energy Information Administration,Annual Electric Utility Report (EIA-861).

3U.S. Department of Energy, Energy Information Administration,Annual Energy Outlook 2013 Early Release, December 2012.

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

Internet; and runs various forms of transportation.Electricity is the most flexible form of energy.

Clearly, electricity is a crucial product we all

take for 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 fact, an-

nual electricity use in the typical U.S. home hasincreased 61 percent since 1970.2

Our love for electronics and need to constantly

be connected is helping to drive electric-

ity use. According to the Consumer Electronics

Association, U.S. household penetration of tab-

lets has grown from zero percent to 44 percent

in just the last four years, while penetration ofsmart phones has grown from 23 percent to 55

percent. And, the average person now views his

or her mobile devices (phones or tablets) 150

timesper day.

Energy-efficiency improvements have had a

major impact in meeting national electricity

needs relative to new supply. According to theU.S. Department of Energys Energy Informa-

tion Administration (EIA), consumer demand for

electricity is projected to increase 23 percent by

2040.3

Did You

Know?

99%of households have televisions

99%of households have refrigerators

82%of households have clothes washers

79%of households have clothes dryers

79% of households have DVD players

76%of households have at least one computer

61%of households have central air conditioning

59% of households have dishwashers

43%of households have DVRs

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

The typical U.S. home now has,on average, at least 25 electronicproducts99 percent of 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

80100

120

140

160

180

200

220

(Percent)

Health Care Natural

Gas

Gasoline

(regular)

Food &

Beverages

Transportation Consumer

Price Index

Housing Electricity

210%

126%

87%72% 67% 65% 64% 62%

Increase in cost of selectedconsumer goods1991-2011 (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 of household bud-

gets dedicated to electricity bills actually has

declined. In fact, the growth rate for electric-

ity prices is lower than other important goods.

Overall, the price of one kilowatt-hour (kWh) of

electricity (adjusted for inflation) has increased

at a lower rate than other consumer goods like

gasoline, health care, housing, food, 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 of local

economic development efforts in thousands of

communities across the nation. They contribute

to the growth, strength, and stability of these

communities by paying billions of dollars in taxes,

by employing more than 500,000 workers, and

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


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4 U.S. Energy Information Administration, data compiled from Electric Power Annual,1994 to 2011 editions.

serve. Electric companies also are the source of

revenue and employment for other businesses

in the community, as they depend on other com-

panies for goods and services ranging from ad-

ministration to complex generating equipment.

Energy EfficiencyPrograms Are MakingA Difference

Electric companies are working with their

customers to use energy more efficiently. Theyare utilizing new technologies that empower

customers to use energy more wisely, and they

are helping their customers reduce their elec-

tricity usage and control their energy bills with

energy-efficiency programs. These programs

are making a difference.

Between 1989 and 2011, electric companiesspent approximately $51 billion on demand-side

management programs, which provide customers

greater control over their energy use. Cumula-

tively, these efforts have saved 1,279 billion kWh

of electricity. In 2011 alone, electric company

energy efficiency programs saved 108.6 billion

kWh of electricityor enough to power nearly

9.68 million average U.S. homes for one year.4

Did You

Know?The average U.S. household has5.7 devices that are connectedto the Internet, deliver apps, andare powered by electricity.

Source: NPD Group, Connected Intelligence, Connected Home,March 2013.


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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

of 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 of American industries,businesses, and consumers are served by the

nations roughly 200 shareholder-owned electriccompanies.

Shareholder-owned electric companies are

owned by millions of shareholders through

direct investments or indirectly through other

investments such as retirement funds, life

insurance policies, or mutual funds. The rest of

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 Affiliates

69.8%

Municipal Systems

11.1%

State Projects 0.9%

Energy Service Providers

2.7%

Political Subdivisions

2.6%

Electric Cooperatives

12.9%

Most Americans Are Served By Shareholder-Owned Electric Companies

Note: Federal Utilities serve


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There are several different types of electricpower suppliers, including:

Shareholder-owned electric companies,

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

regulated at the federal, state, and local lev-

els, and are financed by the sale of stocks and

bonds to the general public.

These companies also include non-utility

generators, which generally produce elec-

tricity for 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 cooperativesare private compa-

nies owned by their customer members. Theyare eligible for subsidized financing from the

Rural Utilities Service (part of the U.S. Depart-

ment of Agriculture); are generally unregulated

by state utility commissions and the Federal

Energy Regulatory Commission (FERC); and

are exempt from paying federal income taxes.

Government-owned electric utilitiesinclude municipal systems, public powerdistricts, state projects, and federal utilities.

Municipal utilities are owned by the munici-

pality in which they operate and are financed

through municipal bonds. Federally owned

utilities are involved in the generation and/or

transmission of electricity, most of which is

sold at wholesale prices to local government-

owned utilities and electric cooperatives.

Government-owned utilties generally are

unregulated by state utility commissions and

FERC.

Energy service providersinclude corpora-tions, generators, brokers, utility generation

subsidiaries, or any other entity licensed to

sell electricity to retail or end-use electric

customers in a competitive market using the

transmission or distribution facilities of an

electric distribution company.

Did YouKnow?

On December 17, 1880,Thomas Edison founded theEdison Electric Illuminating

Company, which established thefirst shareholder-owned electriccompany. The companys PearlStreet Station power plantbegan providing electricity toNew York City in 1882.



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Residential 37.9%

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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10 | Key Facts About The Electric Power Industry How The System Works

Electricity has unique propertiesthat do not allow it to be easilystored. It must be generated anddelivered at the precise moment itis needed.

To reach customers, electricitymust travel from a power plantthrough transmission and distri-bution lines until it reaches itsfinal destination where it will be

used. However, electricity travelsalong the path of least resistance.Unlike telecommunications, elec-tricity cannot be routed to go to aparticular destination. Electricitywill travel whatever paths are

made available to it, much aswater entering a lake flows to thelowest exit points.

How

System Works

the

10


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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 of the fuel mix. Fuel oil is used invery small amounts and provides less than one

percent of all U.S. electricity.

The amount of 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 of power called

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

The amount of electricity a power plant gener-

ates or a customer uses over a period of time

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

ber of watts required by the number of hours

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

if you use a 15-watt compact fluorescent light

bulb five hours a day for 30 days, you have used

15 watts of power for 150 hours, or 2.25 kWh of

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

of the country, a typical household uses about

933 kWh of electricity a month.5

Producing Electricity inGenerating Plants

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

the ability to choose among a broad variety of

fuel sources to produce electricity. The combina-

tion of energy sources used is referred to as the

generation, or fuel, mix. 30

Totals 15 Watts

of Power for

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.6Calculation 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 fossil fuel plant, the fuelprimarily coal or

natural gasis burned in a boiler to turn water

into steam. (Fuel oil, another fossil fuel, is usedto generate less than one percent of the nations

electricity.) Under high pressure, the steam turns

the blades of a turbine that spins a generator,

producing electricity. In a nuclear plant, steam is

produced by the controlled splitting of uranium

atoms in a process known as nuclear fission.

In a hydroelectric power plant, moving water

provides the energy to turn the turbine blades.

With wind turbines, the flow of 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

from 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

of domestic fuels to generate electricity.

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

fuel unavailability, fuel price fluctuations,

and changes in regulatory practices that can

drive up the cost of a particular fuel. Fuel

diversity also helps to ensure stability and

reliability in electricity supply and strengthens

national security.


The electricity generation mix differs from state

to state and region to region, depending on the

availability and cost of fuels located there. Majorchanges in the generation mix can have economic

impacts, especially on a regional basis.

2012 National Fuel Mix

Natural Gas

30.4%

Hydro

6.7%

Non-Hydro Renewables*

5.4%

Fuel Oil 0.6%Other** 0.6%

Coal

37.4%Nuclear

19.0%

* 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.

Sum of components do not add to 100% due to independent rounding.

Source: U.S. Department of Energy, Energy Information Administration, Power PlantOperations Report (EIA-923); 2012 preliminary generation data.


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Building Advanced Generation Technologies

Nuclear: Nuclear power continues to play animportant role in the industrys future gen-

eration plans. The industry has increasedthe capacity of existing nuclear plants, and

several electric companies are building new

nuclear facilities. The industry also supports

the advancement of small modular reactors

and a solution to the long-term management

of spent fuel.

Renewables: Renewable energy, includinghydropower, wind, and solar, has grown rap-idly over the past several years, and EIA proj-

ects that renewables will continue to increase

their share of the nations generation mix

from 10 percent in 2010 to 16 percent in 2040.

However, the development of renewables

recently has been slowed due to low natural

gas prices. Currently, 29 states and theDistrict of Columbia have renewable electricity

standard (RES) mandates.

Going forward, the electric power industry

will continue to pursue renewable energy

resources, including solar and wind power.

Electric companies also are investing in ways

to store electricity, including battery, fly-wheel, and compressed air storage technolo-

gies. These storage technologies will help to

improve the feasibility and cost-effectiveness

of variable renewable energy sources.

To meet our nations demand for electricity, elec-

tric companies depend primarily upon baseload

generationpower that is available around theclockusing readily available fuel sources. At

the same time, the electric power industry is

meeting stricter environmental standards. The

industry is developing and deploying a suite of

advanced generating technologies to reduce

emissions overall and to mitigate the impact of

future price increases for any one fuel.

Coal: While electric companies are closingmany older power plants, coal currently re-

mains the primary fuel source for our nations

electricity mix because the United States has

plentiful supplies of coal within its borders.

The industry is beginning to invest in more

advanced, cleaner coal-plant technologies,

including integrated gasification combined-cycle (IGCC), ultra-supercritical, and circulat-

ing fluidized bed plants. The industry also is

exploring methods for capturing and storing

carbon dioxide (CO2), although large-scale

commercial deployment of carbon capture and

storage (CCS) technology is still years away.

Natural gas: The electric power industry isincreasingly relying upon natural gas as a vital

fuel. Electric companies are building very

efficient combined-cycle natural gas-based

plants. And, new sources of natural gassuch

as shale gasare transforming the market for

this important fuel 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-efficiency natural gas, or nuclear plantsto provide this continuous baseload ser-

vice because they are less expensive to run for

prolonged periods and are designed specifically

to do so.

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

lesser extent, oil-based units are usually the units

of choice for providing service for the hours of 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 fuels that are not

available at all times. As a result, variable renew-

able resources must be backed up by generatingfacilities that can be better controlled, such as

natural gas plants.

The availability of renewable resources also varies

among regions; not all areas of the country have

abundant renewable energy resources. Moreover,

renewable resources often are located in remote

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

often increases project costs.

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 of 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 then carries the electricity

until it reaches a home or business. Electricity

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

produced.

Ensuring Electric Reliability

The North American electric system is com-

prised of a complex, interconnected network of

generating plants, transmission lines, and dis-

tribution facilities. Electric companies have in-

terconnected their transmission systems so that

they may buy and sell power from each other

and from other power suppliers, and to ensure

reliability of service.

Transmission lines link the generators of

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 from each other and from 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 for establishing and

enforcing mandatory reliabilitystandards for 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 Pacific coast and the Mountain statesand Canadian provinces; and another that op-

erates in most of Texas. There are very limited

connections between the three grids to help

minimize the impact of disruptions to the system.

The structure of the grid helps to make reliability

possible, but what makes it a reality is the coor-

dination in operations of the electric companiesthat make up this network. For the electric power

grid to work smoothly and with minimal disrup-

tion, a transmission operator must be aware not

only of the power flowing over its own system

created by its own generators and the electric-

ity demand of its customers, but it also must

be aware of the transfers of electricity between

other systems and how those transfers might

flow through its own system.

To coordinate power flow, control areas have

been formed. Control areas consisting of one

or several transmission operators ensure that

there is always a balance between electricity

generation and the amount of electricity needed

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

ensure reliability at times of peak demand and

to provide for maintenance down times. Opera-

tors use computerized systems to exercise min-

ute-by-minute control over the network and to

ensure that power transfers occur during speci-

fied 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 federal and state levels.

RegulationShareholder-Owned Electric Companies

The

of

18


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

electric companies, are highly regulated at thefederal 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 for the

delivery of electricity to end users (customers)

through distribution wires and related systems.

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

ies by state.

In the majority of states, rates for electricity

are determined by state regulators using a pro-

cess called cost-of-service ratemaking. This

has been the traditional model governing elec-

tric rates for many decades. However, in the 16

states and the District of Columbia where retail

electric competition programs are in place, the

price for the generation portion of customers billsis set in the competitive market. (Again, in these

states, the local distribution portions of 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 of company facilities, including trans-mission facilities that may serve many different

states.

Federal Regulations

Shareholder-owned electric companies also are

highly regulated by federal agencies.

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

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

eral law that regulates the shareholder-owned

segment of 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 functions were

transferred to FERC and the newly created De-

partment of Energy (DOE).

Today, FERC regulates the transmission and

sale of electricity in interstate wholesale elec-

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

tain facilities. FERC also provides oversight of

grid reliability and cybersecurity standards.

Additionally, FERC regulates interstate trans-

mission and interstate wholesale power transac-

tions, which involve shareholder-owned electric

companies buying or selling electricity from one

another or from other power suppliers for resale

to the ultimate customer. FERC has the authority

to regulate the prices, terms, and conditions of

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 for

electric transmission projects under very limited

circumstances; licenses and inspects private,

municipal, and state hydroelectric projects;

monitors and investigates energy markets forpossible market manipulation; enforces FERC

regulatory requirements through imposition of

civil penalties and other means; and adminis-

ters accounting and financial reporting regula-

tions and conduct of regulated companies.

FERC helps to protect the reliability of the high-

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

standards, which include cybersecurity. In 2006,

FERC certified the North American Electric Re-

liability Corporation (NERC) as the Electric Reli-

ability Organizationan independent, self-reg-

ulating entity created by Congress that enforces

reliability and cybersecurity standards.

In 2008, FERC conditionally approved the indus-

trys first mandatory cybersecurity standards.

The standards require users, owners, and

operators of the nations electricity grid to

implement training, physical security, and asset-

recovery plans to protect against the threat of

cyber attacks.

FERC also has encouraged the formation of 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 regions

across the United States.

While FERC has primary jurisdiction over rates

for transmission and interstate wholesale trans-

actions 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 of environmental regulations,

including dozens of rules created under the

federal Clean Air Act and Clean Water Act. TheU.S. Environmental Protection Agency has pri-

mary responsibility for developing and enforcing

most federal environmental regulations. Other

federal agencies have broad authority over

electric company facilities crossing federal

lands or affecting 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 for wires

and other facilities supporting wireless, fiber,

broadband, and other communications systems.

The structural integrity, safety, security, and

reliability of utility poles are fundamentalcomponents of the nations critical energy

infrastructureand the cost to companies for

maintaining these poles is considerable.


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The shareholder-owned segment of the elec-

tric power industry also must comply with the

many federal regulations that apply to all U.S.

businesses. These regulations include finan-

cial and accounting requirements from theSecurities and Exchange Commission and

Commodity Futures Trading Commission; and

anti-trust regulations from the Department of

Justice and Federal Trade Commission.

Protecting the Nations Grid From

Cyber ThreatsThe electric power industry is committed toprotecting the nations electric grid from cyber

threats and to enhancing its cyber defenses. Cy-

bersecurity is a top priority for the industry and

has been a growing focus over the past decade.

The industry employs threat mitigation actions

focused on preparation, prevention, response,

and recovery in its operations.

The electric power industry partners with

federal agencies, including FERC, DOE, and the

Department of Homeland Security, to improve

sector-wide resilience for cyber threats. The

industry also collaborates with the National

Institute of Standards and Technology, NERC,

and federal intelligence and law enforce-

ment agencies to strengthen its cybersecurity

capabilities.

As threats to the grid grow and become more so-

phisticated, the electric power industry remains

committed to strengthening its defense against

cyber attacks. The industry also supports pas-

sage of comprehensive cybersecurity legislation

Did You

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

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

the District of Columbia.

that respects the sectors existing cybersecurity

regulatory regime, limits the scope of new fed-

eral emergency authority, and encourages close

coordination and information sharing among

stakeholders.


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

efficiently as they meet the ever-

growing demands for power.

And, they always are searching

for new and innovative ways to

generate electricityand to use it

wiselywhile also protecting the

environment.

Protecting

Environment

the

22


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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 financial perspective, the

shareholder-owned sector of the

electric power industry is vastly

different from electric coopera-

tives and government-owned utili-

ties because it relies more heavily

on the private sector for invest-

ment capital needed to finance its

operations.

24

In 2012, the electric power industry produced

$346 billi i i f h l Did You


31/36

$346 billion in operating revenues from the sale

of energy and related services.7 In our nations

economy, the electric power industry repre-

sents approximately three percent of real gross

domestic product (GDP).

The electric power industry is the most capi-

tal-intensive industry in the United States, and

customer revenues alone cannot finance all the

plants, facilities, and equipment needed to pro-

vide electric service. Electric companies raise

additional money by issuing stock and selling

debt securities. This financing, called capitaliza-

tion, takes three forms: long-term debt, com-mon stock, and a very small amount of preferred

stock (less than one percent). Electric companies

attempt to implement an appropriate balance of

debt (bonds) and equity (stock) that matches the

risk profile of their investors.

From an investment perspective, millions of

Americans traditionally have relied on divi-dends and the modest, steady growth of utility

stocks to supplement their income. Most utility

shareholders are 50 years old or older and earn

$100,000 or less annually.8Investors in electric

companies greatly benefitted from the American

Taxpayer Relief Act of 2012, which set the top

tax rate for both dividends and capital gains at20 percent for married taxpayers earning more

than $450,000 ($400,000 for singles). For tax-

payers below these thresholds, dividends and

capital gains are taxed at 0 percent and 15 per-

cent, depending on a filers income level.

Lower dividend tax rates make dividend-paying

stocks more attractive to investors. This helps

to lower companies cost of capitali.e., fewer

new shares of stock need to be issued to raise

the same of amount of new capital. By attracting

new investment in utility shares, electric com-

panies are able to raise the capital needed for

major transmission, distribution, and smart grid

system upgrades; new, cleaner generating

capacity; and environmental and energy-

efficiency improvements. Looking forward, the

industrys capital expenditures are forecasted

to be approximately $85 billion per year through

2015. Notably, 2012 actual spending of $90.5

billion was an increase of 15 percent over the

previous year. These investments will help to

ensure a reliable supply of electricity to custom-ers and continued environmental improvements

in the future. And, these capital-improvement

programs offer an important source of much-

needed, high-quality job creation in many states.

Shareholder-owned electric companies also

contribute substantially to the nations tax base

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

31, 2012, shareholder-owned electric companies

incurred a total of $26.6 billion in taxes.

7 Unless otherwise noted, all financial data in this section comes from EEIs2012 Financial Review.

8 Ernst & Young, The Beneficiaries of the Dividend Tax Rate Reduction: A Profileof Qualified Dividend Shareholders, Prepared for the Edison Electric Institute,May 2012.


Did YouKnow?

The electric power industry is themost capital-intensive industry inthe United States.

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 transform the way that

people think about and use electricity.

Everything the industry is doing

todayfrom building a cleaner

generation fleet to enhancing the

grid to advancing electric transpor-

tation in all formsis setting the

stage to ensure that America has

the electricity it needs to power its

future.

Powering Americas

Electric Future

26


33/36

The great challenge facing the electric power in-

dustry is the need to supply affordable, reliable,

and environmentally sustainable electricity to a

country that is growing in both population and

standard of living. To meet this challenge, theindustry is transforming how electric companies

generate and deliver electricity, and how cus-

tomers use it. The industry also is committed

to training a new generation of workers to help

meet our nations future energy needs.

Improving Energy EfficiencyElectric companies have a long and successful

track record of working with their customers

on ways to reduce their electricity usage and to

control their energy bills with energy-efficiency

programs. Today, electric companies are pro-

moting a variety of innovative business and reg-

ulatory approaches that will encourage the use

of state-of-the-art efficiency technologies and

services. They also are pursuing a wide range

of opportunities to improve energy efficiency

such as improving the efficiency of buildings

and appliances, accelerating the development

of advanced metering infrastructure and smart

meters, advancing more efficient distribution

transformers, and encouraging the develop-ment and deployment of electric vehicles (EVs).

While it may be necessary to add new generat-

ing capacity in order to meet the demands of

the economy and a growing population, energy

efficiency can help to offset some of that demand.

In many ways, energy efficiency can be consid-

ered another fuel. However, state regulations

generally compensate electric companies based

on electricity sales. To truly transform the role ofenergy efficiency in the United States, new busi-

ness models that consider energy efficiency as a

resource are needed.

Enhancing the Grid

The electric power industry is transforming the

nations electric grid by incorporating telecom-munications and information technology in-

frastructure into utility operations. These new

capabilities will provide electric companies and

customers greater control over electricity use.

By enhancing the grid, the industry is creat-

ing a platform for new technologies to increase

system reliability and efficiency. This 21st-cen-

tury 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 infrastructure platform will provide

important benefits to customers, including

significant opportunities for energy savings

and a variety of potential new services. For

example, smart meters measure electricity us-

age far more frequently than traditional meters

and can send data to and from electric compa-

nies and their customers.



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Electric Transportation

Electricity is a domestically produced fuel that

will transform our nations transportation sector.

EVs will help our country to reduce its depen-

dence on foreign oil; to create new, high-quality

American jobs; and to enter an era of clean

transportation. The first round of EVs began

arriving in several U.S. markets at the end of

2010, and the rollout will continue over the next

few years.

EVs are plugged in to the existing electricity sys-

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

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

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

is similar to an outlet used for a clothes dryer.)

Owners can recharge their batteries overnight,

using lower-cost, off-peak electricity. Under this

scenario, charging an EV is comparable to pay-

ing $1.00 per gallon for gasoline.The electric power industry is committed to ad-

vancing electric transportation and to utilizing

electricity as a transportation fuel. The industry

is helping to address the infrastructure needed

for widescale deployment of EVs, such as charg-

ing options in homes, businesses, and public

areas. Enhancing our nations electric grid is akey component for large-scale commercializa-

tion of EVs. Smart grid technology will help EV

owners choose the best time of day to charge

their vehicles and optimize the benefits of EVs.

Promoting Electrification

New technologies and customer demands for

smaller and more powerful devices are helping

to expand the use of electricity. Today, electrifi-

cation offers unlimited potential and customer

benefits. And opportunities are not limited just

to the residential sector, but cross a broad spec-

trum of commercial and industrial applications:

shipyard cranes, warehouse forklifts, fleet ve-

hicles, mining and manufacturing, retail, and

any fueled application that can be converted to

an electric motor.

Industries and resources that run on electric-

ity now account for 60 percent of our GDP, and

these same segments now account for 85 per-

cent of GDP growth.

Training a New Generation

of Utility Workers

The electric power industry is focused on build-

ing a skilled workforce to help meet our na-

tions future energy needs. EIA projects that our

countrys demand for electricity will increase

23 percent by 2040. To meet this demandand

to account for the projected retirements in the

industryelectric companies will need to hireskilled workers throughout the country. And,

as the industry utilizes emerging energy tech-

nologies, electric companies are committed

to 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 providesmuch-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 of U.S.shareholder-owned electric companies. Our members serve95 percent of the ultimate customers in the shareholder-

owned segment of the industry, and represent approximately70 percent of the U.S. electric power industry. We alsohave as Affiliate 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 of 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-of-a-kind conferencesand forums, and top-notch products and services.

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

May 2013

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