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Utility Terms Definitions

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Competitive market
An open market in which various suppliers may sell electricity competitively.

Customer charge
Part of the monthly basic service charge on an electric customer's bill that partially covers costs for billing, meter reading, equipment, service line maintenance, and equipment. This charge is the same no matter how much electricity the customer uses.

Customer choice
The opportunity for consumers to choose among electricity suppliers as a result of deregulation.

A process of reducing or removing regulations to increase competition among electric utilities and to give consumers choice among electricity suppliers.

Distribution company
The local company that owns the poles and wires necessary to deliver electricity to a home or business. Following deregulation, the distribution company will continue to maintain the existing wires and poles and will be responsible for restoring electric service in the event of an outage.

The separation of one utility function from others by selling or changing ownership of assets related to that function; most commonly associated with spinning off generation assets so they no longer are owned by the regulated utility that owns the transmission and distribution assets.

Federal Energy Regulatory Commission (FERC)
The Federal Energy Regulatory Commission, established in 1977, regulates wholesale electricity markets, specifically the power and transmission sales and service among utilities and between utilities and non-utility generators. An independent agency of the Department of Energy, the FERC is composed of five members appointed by the President of the United States and confirmed by the Senate. Commissioners serve five-year staggered terms, and each has an equal vote on all regulatory matters.

Independent Service Operator (ISO)
An independent entity that controls a power grid to coordinate the generation and transmission of electricity and ensure a reliable power supply. In current models, ISO's would be independent of the states' utilities and would be regulated by FERC.

Kilowatt-hour (kwh)
A basic unit of electric energy equal to one kilowatt (1,000 watts) of power supplied to or taken from an electric circuit steadily for one hour.

Load profile
Measurements of a customer's electricity usage over a period of time that show how much electricity that customer used and when that customer used it. Suppliers and transmission system operators can use load profiles to forecast electricity supply requirements and to determine the cost of serving a customer.

Local distribution company (LDC)
Also referred to in some areas as the utility distribution company (UDC). The current electric utility company that continues to provide regulated services for distributing electricity to customers and to serve customers who do not choose direct access. Regardless of where a consumer chooses to purchase electricity, the LDC delivers it to the consumer's home, business, or farm. In the event of a power outage, consumers contact their LDC, which is responsible for reliability and maintenance of the lines and poles that connect the consumer's home or business to the transmission grid.

One million watts, or 1,000 kilowatts.

Mid-Continent Area Power Pool (MAPP)
A voluntary organization that was formed by electric utilities serving customers in eight states and two Canadian provinces to establish operational rules and ensure reliability of the electric grid serving the area. In place for many years, it is now being phased out because of the deregulation of generation and transmission. In its place is a regional transmission organization called the Midwest Independent System Operator (MISO) that will serve a much larger area but will provide the same operational and reliability rules previously provided by MAPP.

National Energy Policy Act
1992 legislation that provides for competition in electric generation. The law also gives FERC authority to require utilities to provide access to their transmission systems to other electric suppliers seeking to compete in the wholesale market.

Open access 
A key component of the deregulation process that allows customers to purchase electricity separately from the utility's delivery services. Open access laws and rules are the first major step to a competitive market.

Performance Based Regulations (PBR)
Under performance-based ratemaking, rates for utility service would no longer be based on cost-of-service, but instead on performance standards and market indices. PBR allows a utility greater flexibility to manage the costs of its electric system and to price its power at competitive levels by taking the market risk for recovering the revenues. Xcel Energy Company (formerly NSP) and Otter Tail Power Company recently received approval from the ND PSC to implement PBR for the first time in North Dakotas' history.

Power Marketer
Back in the days before deregulation, the only players in the utility industry were integrated companies -- companies that owned generation, transmission, and distribution facilities. They not only generated the electricity, they transported it and delivered it to your home and business.

Now comes deregulation causing the formation of a host of new companies and organizational structures, of which, the power marketers are the fastest growing. They purchase blocks of electricity from whomever will sell it, and they resell it to large commercial and industrial users by using the existing transmission and distribution grids.
During 1996, power marketers provided 231.8 million megawatt hours of energy - energy equivalent to the needs of 22.1 million homes. Last year, during just the first nine months of 1999, this group provided 1.9 billion megawatt hours of energy - energy equivalent to the needs of 243 million home.

Regulated business
A business, such as electric or gas utility, whose operations and prices are regulated by a government agency, such as:

  • Federal Energy Regulatory Commission (FERC)-Agency within the Department of Energy that regulates prices and conditions of service for transmitting electricity among states.
  • Public Utilities Commission (PUC) or Public Service Commission (PSC)-State agencies that regulate prices and conditions of service for distributing electricity.

The process of separating a utility into its functions-transmission, distribution, generation, and services-resulting in continued regulation of distribution and transmission and competitive markets for generation and services.

Retail access
A market in which electricity and other energy services are sold directly to the end-use customer.

Retail competition
Opportunity for customers to purchase electricity from among a number of different providers.

Retail wheeling
Also known as retail customer choice; requires a utility company to transport electricity from a generating plant that it does not own directly to its retail customers. Retail wheeling gives retail customers the ability to purchase electricity from sources they choose.

Stranded costs
A portion of your monthly electric bill is to pay for the energy you use, while another portion is to pay for infrastructure--the transmission lines and distribution system--that brings the electricity to you. With the sale of blocks of energy by non-utilities allowed under deregulation, the electric utility companies will have a difficult time recovering their infrastructure costs. Costs not billed in block energy sales become "stranded" and are a serious concern to the investors in electric utility companies. It is important that the Public Service Commission allows stranded costs to be recovered from energy consumers.

Stranded investments or stranded costs
Also known as negative stranded costs, are utility investments, such as in facilities and equipment that are not supported by market prices.

Transmission charge
Part of the monthly basic service charge on an electric customer’s bill for transporting electricity from the source of supply to the local distribution company. This charge will vary with the source of supply. The Federal Energy Regulatory Commission regulates retail transmission prices and services.

Unbundled rates
Separate charges for components of regulated electric service, such as generation, transmission, and distribution services.

Breaking down electric utility service into its component parts (i.e., generation, transmission, and distribution services) so that each part can bill or be sold separately.

Wheeling Service
A service provided by a utility that owns transmission facilities. Under a wheeling service agreement, the utility wheels, or transfers, electric energy from a generating source to a purchaser. Energy can be wheeled for short distances, across an entire system, or across several systems.

Wholesale competition
Opportunity for other electric companies to purchase bulk supplies of electricity that they can resell to their customers. These exchanges usually are accompanied by an agreement that allows the use of the interconnected transmission system.