KEY FACTS

about the

Electric Power Industry

Did You Know?

 The electric power industry is a $737-billion industry that powers our economy and enhances our everyday lives.  In our nations economy, the electric power industry represents 3 percent of real gross domestic product.  Americas shareholder-owned electric companies employ more than 500,000 workers.  Nearly 70 percent of industries, American businesses, and consumers are served by shareholder-owned electric companies.

continues

Did You Know?

 Demand for electricity is projected to increase 31 percent by 2035 as the number of products powered by electricity increases. Today, for example, 76 percent of U.S. homes have at least one computer.  Fuel diversity is key to reliable and affordable electricity. Electric companies use a variety of fuels to generate electricity, and tend to use the fuels that are most cost-effective and readily available in their region.  Since 1990, electric companies have reduced emissions of both nitrogen oxides (NOX) and sulfur dioxide (SO2) by about 70 percent, while electricity use has increased 38 percent.  The electric power industry is developing advanced generation technologies to generate electricity more cleanly.

 In the United States, the electric power industry leads all other industrial sectors in reducing carbon dioxide (CO2) emissions.  Millions of Americans invest in the electric utility industry and rely on the modest, steady growth of utility stocks to supplement their income.  The electric power industry is capital intensive it is spending approximately $75 billion per year for major transmission, distribution, and smart grid system upgrades; new, cleaner generation capacity; and environmental and energy-efficiency imp ovements.  Electric companies are investing in energy efficiency and are promoting innovative options for making energy efficiency part of their busine s model.

KEY FACTS

about the

Electric Power Industry

Table of Contents:
Introduction The Value of Electricity A Closer Look at the Electric Power Industry How the System Works The Regulation of Shareholder-Owned Electric Companies Protecting the Environment The Financial Side of the Electric Power Industry Powering Americas Electric Future 1 2 6 10

18 22 24 26

Introduction
The electric power industry is a $737-billion industry1 that provides a vital service to modern life. Electricity helps to grow our economy and to improve our standard of living. Americas shareholder-owned electric companies employ more than 500,000 workers, pay billions of dollars in tax revenue, provide a variety of public service programs to benefit the local communities they serve, and produce one of our most valuable productselectricity. Not only is electricity the most prevalent energy form known, its versatility is unparalleled. Today, electric companies are transforming the way they produce power and deliver it to customers. These companies are utilizing new technologies that empower customers to use electricity more wisely, which reduces the need for new generation. And, they are investing in control technologies to reduce emissions at existing power plants, while building new facilities that use cleaner technologies. Going forward, electricity will play an increasingly larger role in transforming our transportation sector, as a new generation of plug-in electric vehicles (PEVs) will help to reduce U.S. dependence on foreign oil and to create new, high-quality American jobs.

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

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

The

Value Electricity
of of
Its hard to imagine what our lives would be like without electricity. Thats because we depend on electricity 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, electricity has become our most prevalent energy form. It drives our nations economy and powers smart technologies that enhance our quality of life.

Electricity powers our homes, offices, and industries; enables communications, entertainment, and medical services; powers computers, electric technologies, smart phones, and the Internet; and runs various forms of transportation. Electricity is the most flexible and most controllable form of energy. Clearly, electricity is a crucial product we all take for granted. We scarcely think about it, unless we dont have it. Today, our high-technology society demands electricity to power nearly all new products that come to market. In fact, the share of electricity used by appliances and consumer electronics in U.S. homes has nearly doubled over the past three decades.2 While energy-efficiency improvements have had a major impact in meeting national electricity needs relative to new supply, the demand for electricity continues to increase. According to the U.S. Department of Energys Energy Information Administration (EIA), consumer demand for electricity is projected to increase 31 percent by 2035.3

Did You Know?

The typical U.S. home now has, on average, almost 25 electronic products99 percent of which must be plugged in or recharged.
99% of households have televisions 99% of households have refrigerators 82% of households have a clothes washer 79% of households have a clothes dryer 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 a dishwasher

U.S. Department of Energy, Energy Information Administration, Residential Energy Consumption Survey, March 2011. U.S. Department of Energy, Energy Information Administration, 2011 Annual Energy Outlook, April 2011.

50% of households have a DVR

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

Key Facts About The Electric Power Industry | 3

Changes In Electricity Prices Compared To Other Consumer Products

(Percent) 180 160 140 120 100 80 60 40 20 0 Gasoline (regular) Health Care Natural Gas Housing Consumer Price Index Food & Transportation Electricity Beverages

159% 139% 105% 68%

Increase in cost of selected consumer goods

1990-2010 (nominal dollars)

67%

67%

60%

50%

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

Electricity Prices Remain An Excellent Value

While American homes use more electricity today than ever, the portion of household budgets dedicated to electricity bills actually has declined. In fact, the growth rate for electricity prices is lower than other important goods. Overall, the price of one kilowatt-hour of electricity (adjusted for inflation) has increased at a lower rate than other consumer goods like gasoline, health care, housing, food, and transportation.
4 | Key Facts About The Electric Power Industry

The Industrys Investment In Local Communities

In addition to providing reliable electricity to our homes and businesses, Americas electric 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 programs that address the needs of the communities they

serve. Electric companies also are the source of revenue and employment for other businesses in the community, as they depend on other companies for goods and services ranging from administration to complex generating equipment.

Did You Know?

More than one-third of U.S. households now own a smart phone that must be charged by electricity.
Source: Consumer Electronics Association

Energy Efficiency Programs Are Making A Difference

Electric companies are working with their customers to use energy more efficiently. They are utilizing new technologies that empower customers to use energy more wisely, and they are helping their customers reduce their electricity usage and control their energy bills with energyefficiency programs. These programs are making a difference. Between 1989 and 2009, electric company energy efficiency programs saved 1,083 billion kilowatthours (kWh) of electricity. Thats enough electricity to power nearly 100 million average U.S. homes for one year.4

U.S. Energy Information Administration, data compiled from Electric Power Annual, 1994 to 2009 editions.
Key Facts About The Electric Power Industry |5

Closer Look
at the
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 contributes to the progress and prosperity of our nation.

Electric Power Industry

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

The electric power industry includes any entity producing, selling, or distributing electricity. Today, nearly 70 percent of American industries, businesses, and consumers are served by the nations roughly 200 shareholder-owned electric companies. 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 utilities, and other energy service providers.

Most Americans Are Served By Shareholder-Owned Electric Companies

Cooperatives Electric Cooperatives

12.3%13.0%
Municipal Systems Energy Service Providers

11.2%

3.7%
Political Subdivisions

Shareholder-Owned Electric Companies and Affiliates

2.6%
State Projects 0.9%

68.6%
Note: Federal Utilites serve <0.1% of customers. Sum of components may not add to 100% due to independent rounding. Source: Edison Electric Institute, Business Information Group, based on 2010 preliminary data from the U.S. Energy Information Administration.

Key Facts About The Electric Power Industry | 7

There are several different types of electric power suppliers, including:

S  hareholder-owned electric companies, which serve nearly 70 percent of all customers, are tax-paying businesses that are highly regulated at the federal, state, and local levels, and are financed by the sale of stocks and bonds to the general public. These companies also include non-utility generators, which generally produce electricity for their own purposes or to sell into the 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. E  lectric cooperatives are private companies owned by their customer members; they are eligible for subsidized financing from the Rural Utilities Service (part of the U.S. Department of Agriculture), and are generally unregulated and exempt from paying federal income taxes. G  overnment-owned electric utilities include municipal systems, public power districts, state projects, and federal utilities. Municipal utilities are owned by the municipality 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 generally are unregulated.

utilities

E  nergy service providers include corporations, 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 You Know?

On December 17, 1880, Thomas Edison founded the Edison Electric Illuminating Company, which established the first shareholder-owned electric company. The companys Pearl Street Station power plant began providing electricity to New York City in 1882.

8 | Key Facts About The Electric Power Industry

Electric Companies Serve Three Major Groups Of Customers

Electric companies serve customers in three major groups: residential, commercial, and industrial. Residential consumersthose in individual homes and apartmentsare the largest class of customers. Commercial customers are the next largest class and include hospitals, office buildings, and businesses such as stores, hotels, supermarkets, and restaurants. Industrial customersfactories, refineries, textile mills, and other industrial plantsaccount for less than one percent of all customers, but consume more than one-fourth of the electricity sold. Transportation customers, which include electrified rail and urban transit systems, account for less than one-tenth of one percent of all customers served by electric companies. However, EIA expects the transportation sector to increase its use of electricity over the next several years as sales of electric and plug-in electric vehicles continue to grow.

Electric Company Customers By Class

Residential 87.3% Commercial 12.2% Industrial

0.5%

Transportation

<0.1%

Electricity Sales To Total Ultimate Customers

Residential 38.7% Commercial 35.4% Industrial

25.7%

Transportation
Source: Edison Electric Institute, Web Preview of the Statistical Yearbook of the Electric Power Industry, 2010 Data, published May 2011. Note: Sum of components may not add to 100% due to independent rounding.

0.2%

Key Facts About The Electric Power Industry | 9

System Works
Electricity has unique properties that do not allow it to be easily stored. It must be generated and delivered at the precise moment it is needed. To reach customers, electricity must travel from a power plant through transmission and distribution lines until it reaches its final destination where it will be used. However, electricity travels along the path of least resistance. Unlike telecommunications, electricity cannot be routed to go to a particular destination. Electricity will travel whatever paths are made available to it, much as water entering a lake flows to the lowest exit points.

How

the

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

Electricity Is Measured in Watts

Electricity is measured in units of power called watts. One watt is such a small amount of power, however, that the more commonly used measurement is the kilowatt (kW), representing 1,000 watts. The higher the watt or kilowatt rating of a particular electrical device, the more electricity it requires. The amount of electricity a power plant generates or a customer uses over a period of time is measured in kilowatt-hours (kWh). Kilowatthours are determined by multiplying the number 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 varies widely depending on the season and the region of the country, a typical household uses about 919 kWh of electricity a month.5

Most U.S. electricity is produced by coal, nuclear 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 in very 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 representing 1,000 kW. A 500-MW power plant provides enough electricity to serve nearly 342,000 residential customers.6

One 15-Watt Light Bulb Used 5 Hours Per Day...

Producing Electricity in Generating Plants

Electricity is produced by domestic fuel sources in generating plants. Electric generators have the ability to choose among a broad variety of fuel sources to produce electricity. The combination of energy sources used is referred to as the generation, or fuel, mix.
5 6

Totals 15 Watts of Power for 150 Hours or 2.25 Kilowatt-hours

30

For 30 Days...

 EEI, Statistical Yearbook of the Electric Power Industry. Calculation is based on a coal, natural gas, or nuclear power plant operating 90 percent of the time.
Key Facts About The Electric Power Industry | 11

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 used to 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 the turbine blades, which then turn an electric generator. With most solar power, sunlight is converted 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 Turbine Emission Control Equipment Steam Steam Generator (A magnet rotates inside stationary coils of copper to produce electromagnetic current)

Spent Fuel Emissions Steam

Condensation

Electric Current

Fuel Source

Condensed Water Water

End Use

Boiler Fuel

12 | Key Facts About The Electric Power Industry

Fuel Diversity Is Key

Americas electric companies rely on a variety of domestic fuels to generate electricity. Fuel diversity helps to protect electric companies and 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. Major changes in the generation mix can have economic impacts, especially on a regional basis.

Fuel Oil 0.9%

Non-Hydro Renewables*

Other** 0.6%

4.1%
Hydro

6.1%

2010 National Fuel Mix

Coal Nuclear

44.9%

19.6%

* Includes generation by agricultural waste, landfill gas recovery, municipal solid waste, wood, geothermal, non-wood waste, wind, and solar. ** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, and miscellaneous technologies. Sources: U.S. Department of Energy, Energy Information Administration, Power Plant Report (EIA-920), and Combined Heat and Power Plant Report (EIA-920); 2010 preliminary data.

Natural Gas

23.8%

Key Facts About The Electric Power Industry | 13

Building Advanced Generation Technologies

To meet our nations growing demand for electricity, electric companies will need to continue to increase their baseload generationpower that is available around the clockwith 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 achieve emissions reductions and to mitigate the impact of future price increases for any one fuel. Coal: While utilities are closing many older power plants, coal will continue to serve as 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), ultrasupercritical, and circulating 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. Nuclear: Nuclear power also will play an important role in the industrys future generation plans. The industry continues to increase the capacity of existing nuclear plants, and electric companies are filing a number of new reactor license applications. Moving forward, the federal governments loan guarantee program and search for a solution for the management of spent fuel will help to remove some of the barriers to increasing nuclear power. Renewables: Renewable energy has grown rapidly over the past several years, and EIA projects that renewables will continue to increase their share of the nations generation mixfrom 10 percent in 2010 to 14 percent in 2035. However, the development of renewables recently has been slowed due to low natural gas prices. Currently, 29 states and the District of Columbia have renewable electricity standard (RES) mandates. G  oing 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, flywheel, and compressed air storage technologies. These storage technologies will help to improve the feasibility and cost-effectiveness of variable renewable energy sources.

Natural gas: The electric power industry is

increasingly 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.

14 | Key Facts About The Electric Power Industry

Meeting Customer Demand

Electricity must be produced when customers need it. Because electricity cannot be stored easily or economically, electric companies and other electricity suppliers must have enough generation capacity available to meet maximum demand on their systems, whenever that occurs. To ensure that there is enough electricity available to meet customer demand, some power plants work around the clock. Typically, companies use coal-based, hydro, high-efficiency natural gas, or nuclear plants to provide this continuous baseload service 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 the day when demand hits its highest, or peak, levels. These peaker units may be started and stopped quickly, unlike coal- and nuclear-based plants. Non-hydro renewable energy sources, such as wind and solar, are variable technologies that are not available at all times. As a result, variable renewable resources must be backed up by generating facilities 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 needed requires an adequate transmission system.

Delivering Electricity to Customers

When electricity leaves a power plant, its voltage is increased at a step-up substation near the plant. Next, the energy travels along a transmission 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 carries the electricity until it reaches a home or business. Electricity travels at nearly the speed of light, arriving at a destination at almost the same moment it is produced.

Ensuring Electric Reliability

The North American electric system is comprised of a complex interconnected network of generating plants, transmission lines, and distribution facilities. Electric companies have interconnected 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.

Key Facts About The Electric Power Industry | 15

Getting Electricity Where It Is Needed

2) 1) 3)

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).

4) 6) 5)

(4).

Once there,the voltage is decreased or stepped-down, at another substation

Finally, a distribution power line (5) carries the electricity until it reaches a home or business (6).

16 | Key Facts About The Electric Power Industry

These transmission lines are divided into three regional grids: one in the East that connects the Eastern seaboard and the Plains states and Canadian provinces; another in the West that connects the Pacific coast and the Mountain states and Canadian provinces; and another that operates 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 makes reliability possible, but what makes it a reality is the coordination in operations of the electric companies that make up this network. For the electric power grid to work smoothly and without disruption, a transmission operator must be aware not only of the power flowing over its own system created by its own generators and the electricity 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 margin of capacity beyond the actual load is needed to ensure reliability at times of peak demand and to provide for maintenance down times. Operators use computerized systems to exercise minute-by-minute control over the network and to ensure that power transfers occur during specified times in pre-arranged amounts.

Did You Know?

The North American Electric Reliability Corporation oversees eight regional reliability entities and is responsible for establishing and enforcing mandatory reliability standards for the power grid.

Key Facts About The Electric Power Industry |17

The

Regulation

of

Shareholder-Owned Electric Companies

Shareholder-owned electric companies are highly regulated at the federal and state levels.

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

Although the electric power industry is a diverse one with thousands of suppliers, not all of them are regulated in the same way. Prices charged by some suppliers, such as shareholder-owned electric companies, are highly regulated at the federal and state levels; other suppliers, such as electric cooperatives and government-owned utilities, are not subject to the same regulatory rate requirements.

Federal Regulations
Shareholder-owned electric companies are also highly regulated by federal agencies.

The Federal Power Act (FPA) and the Federal Energy Regulatory Commission (FERC)
The FPA, enacted in 1935, is the primary federal 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 were reasonable, nondiscriminatory, and just to the consumer. In 1970, the FPCs functions were transferred to FERC and the newly created Department of Energy. Today, FERC regulates the transmission and sale of electricity in interstate wholesale electricity markets; utility sales of assets; mergers and acquisitions; and interconnections of certain facilities. FERC also provides oversight of grid reliability. Additionally, FERC regulates interstate transmission and interstate wholesale power transactions, 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.

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, varies by state. In the majority of states, rates for electricity are determined by state regulators using a process called cost-of-service ratemaking. This has been the traditional model governing electric 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 bills is set in the competitive market. (Again, in these states, the local distribution portions of customers bills are still governed by state regulators.) Electric companies also are subject to environmental regulations issued by individual states. And, states have the primary role in approving the siting of company facilities, including transmission facilities that may serve many different states.

Key Facts About The Electric Power Industry | 19

FERC also reviews the siting applications for electric transmission projects under limited circumstances; licenses and inspects private, municipal, and state hydroelectric projects; monitors and investigates energy markets for possible market manipulation; enforces FERC regulatory requirements through imposition of civil penalties and other means; and administers accounting and financial reporting regulations and conduct of regulated companies. FERC helps to protect the reliability of the highvoltage interstate transmission system with oversight authority for mandatory electric reliability standards, which include cyber security. In 2006, FERC certified the North American Electric Reliability Corporation (NERC) as the Electric Reliability Organizationan independent, self-regulating entity created by Congress that enforces reliability standards. In 2008, FERC conditionally approved the industrys first mandatory cyber security 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 attack. Today, utilities are working to ensure that forthcoming cyber security regulations will promote reliable and cost-effective service. FERC also has encouraged the formation of regional transmission organizations (RTOs) and Independent System Operators (ISOs) to oversee electricity markets. These organizations help to run the transmission grid on a regional basis. There are currently seven RTO/ISO regions across the United States.
20 | Key Facts About The Electric Power Industry

While FERC has primary jurisdiction over rates for transmission and interstate wholesale transaction by shareholder-owned electric companies, the agency has only very limited jurisdiction over government-owned utilities and electric 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. The U.S. Environmental Protection Agency (EPA) has primary 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 telecommunications 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 fundamental components of the nations critical energy infrastructureand the cost to companies for maintaining these poles is considerable.

The shareholder-owned segment of the electric power industry also must comply with the many federal regulations that apply to all U.S. businesses. These regulations include financial and accounting requirements from the Securities and Exchange Commission and Commodity Futures Trading Commission; and anti-trust regulations from the Department of Justice and Federal Trade Commission.

Did You Know?

In the 1890s, electric companies began to develop in urban areas because of economies of scale. By 1907, New York and Wisconsin began to regulate these companies. Regulation spread to two-thirds of the states by 1920, and today electric companies are regulated in all 50 states.

Key Facts About The Electric Power Industry 21

Protecting

the

Environment
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 evergrowing demands for power. And, they are always searching for new and innovative ways to generate electricityand to use it wiselywhile also protecting the environment.
22 | Key Facts About The Electric Power Industry The Regulation Of Shareholder-Owned Electric Companies 22

Electric companies work hard to protect the environment of the communities in which they operate. Electric companies spend billions of dollars each year on environmental practices, technologies, and operational measures to protect human health and the environment. As a result, Americas electric generation fleetincluding coal-based power plants that today produce nearly 45 percent of the nations electricityhas become increasingly cleaner over the last two decades, and will continue to do so. Likewise, air quality in the United States has improved dramatically in recent years. In fact, since 1990, electric companies have reduced emissions of both NOX and SO2 by about 70 percent, while electricity demand has grown by 38 percent. The electric power industry also is working to reduce CO2 and other greenhouse gas (GHG) emissions. In the United States, the electric

power industry leads all other industrial sectors in reducing CO2 emissions. To make significant GHG reductions in the future, the electric power industry will rely upon a full suite of environmentally friendly technologies. In addition to advanced generation technologies, the industry will utilize energy efficiency technologies; modernize the power grid; and support the deployment of PEVs. EPA is proposing a significant number of rules that will affect the industrys existing generating fleet over the next several years, as well as electric companies future plans for meeting electricity demand. These rules likely will require additional reductions in NOX, SO2, mercury, and other emissions. Going forward, the industry is strongly committed to further emissions reductions and to continued cost-effective environmental protection as an integral part of generating electricity.

Utilities Have Substantially Reduced Air Emissions While Increasing Electricity Production
200 180 160 140 120 100 80 60 40 20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1990 represents the base year. Graph depicts increases or decreases from the base year. Source: U.S. Department of Energy, Energy Information Administration (EIA).
Key Facts About The Electric Power Industry | 23

Index 1990 = 100 Real GDP h

65% 38%

SO2 Emissions i NOX Emissions i

67%

Electricity Use h

68%
2010

The

Financial Side
of the

Electric Power Industry

From a financial perspective, the shareholder-owned sector of the electric power industry is vastly different from electric cooperatives and government-owned utilities because it relies more heavily on the private sector for investment capital needed to finance its operations.

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

In 2010, the electric power industry produced $372 billion in revenue from sales to ultimate customers.7 In our nations economy, the electric power industry represents three percent of real gross domestic product (GDP). However, customer revenues alone cannot finance all the plants, facilities, and equipment needed to provide electric service. Electric companies raise additional money by issuing stock and selling debt securities. This financing, called capitalization, takes three forms: long-term debt, common 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 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.8 Investors in electric companies greatly benefitted from the Jobs and Growth Tax Reconciliation Act of 2003, which temporarily reduced to 15 percent the maximum tax rate on dividend income. Congress extended the reduced tax rate in 2006 and again in 2010. The reduced tax rate is now effective through 2012. 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 companies are able to raise the capital needed

Did You Know?

The electric power industry is among the most capital-intensive industries in the world.
for major transmission, distribution, and smart grid system upgrades; new, cleaner generating capacity; and environmental and energyefficiency improvements. Looking forward, the industrys capital expenditures are forecasted to be approximately $80 billion to $85 billion per year, or double their 2004 level. These investments will help to ensure a reliable supply of electricity to customers 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, such as property taxes. For the year ended December 31, 2010, shareholder-owned electric companies incurred a total of $31.7 billion in taxes.
 nless otherwise noted, all financial data in this section comes from EEIs U 2010 Financial Review. 8 Ernst & Young, The Beneficiaries of the Dividend Tax Rate Reduction, Prepared for the Edison Electric Institute and the American Gas Association, January 2010.
7

Key Facts About The Electric Power Industry | 25

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 modernizing the grid to advancing electric transportation in all formsis setting the stage to ensure that America has the electricity it needs to power its future.

Powering Americas

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

The great challenge facing the electric power industry 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, the industry is transforming how electric companies generate and deliver electricity, and how customers use it. The industry also is committed to training a new generation of workers to help meet our nations future energy needs.

demand. In many ways, energy efficiency can be considered another fuel. However, state regulations generally compensate electric companies based on electricity sales. To truly transform the role of energy efficiency in the United States, new business models that consider energy efficiency as a resource are needed.

Modernizing the Grid

The electric power industry is modernizing the nations electric grid by incorporating telecommunications and information technology infrastructure into utility operations. These new capabilities will provide electric companies and customers greater control over electricity use. By modernizing the grid, the industry is creating a platform for new technologies to increase system reliability and efficiency. This modernized grid will provide electric companies with a nearly real-time situational awareness capability, 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 usage far more frequently than traditional meters and can send data to and from electric companies and their customers.

Enhancing Energy Efficiency

Electric 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 promoting a variety of innovative business and regulatory 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 development of PEVs. While it is necessary to add significant new generating capacity in order to meet the demands of the economy and a growing population, energy efficiency can help to offset some of that

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Electric Transportation
Electricity is a domestically produced transportation fuel that will transform our nations transportation sector. PEVs will help our country to reduce its dependence on foreign oil; to create new, high-quality American jobs; and to enter an era of clean transportation. The first round of PEVs began arriving in several U.S. markets at the end of 2010, and the rollout will continue over the next few years. PEVs are plugged in to the existing electricity system using a 120-volt (V) or 220V/240V outlet to recharge the car battery. (A 120V-outlet is a standard household outlet, while a 220V/240Voutlet 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 a PEV is comparable to paying $1.00 per gallon for gasoline. The electric power industry is committed to advancing PEVs and to utilizing electricity as a transportation fuel. The industry is helping to address the infrastructure needed for widescale deployment of PEVs, such as the charging options in homes, businesses, and public areas. Modernizing our nations electric grid is a key component for large-scale commercialization of PEVs. Smart grid technology will help PEV owners choose the best time of day to charge their vehicles and optimize the benefits of PEVs.

Training a New Generation of Utility Workers

The electric power industry is focused on building a skilled workforce to help meet our nations future energy needs. EIA projects that our countrys demand for electricity will increase 31 percent by 2035. To meet this demandand to account for the projected retirements in the industryelectric companies will need to hire skilled workers throughout the country. And, as the industry utilizes emerging energy technologies, electric companies are committed to helping workers learn necessary new skills and advance in their careers. From line workers to customer service operators to electrical engineers, the electric power industry provides much-needed, high-quality job opportunities throughout the country.

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

The Edison Electric Institute (EEI) is the association of U.S. shareholder-owned electric companies. Our members serve 95 percent of the ultimate customers in the shareholderowned segment of the industry, and represent approximately 70 percent of the U.S. electric power industry. We also have as Affiliate members more than 80 International electric companies, and as Associate members more than 200 industry suppliers and related organizations. Organized in 1933, EEI works closely with all of its members, representing their interests and advocating equitable policies in legislative and regulatory arenas. EEI provides public policy leadership, critical industry data, strategic business intelligence, one-of-a-kind conferences and forums, and top-notch products and services. For more information, visit our Web site at www.eei.org.

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

October 2011