Electric Trade in the United States 1996

In the past, wholesale trade in electricity played an important role for the U.S. electric utility industry in helping to reduce costs and for providing reliability support. Today, it has an even more important role in the new competitive electric power industry. For in 1996, the wholesale trade market totaled 2.3 trillion kilowatthours. This total, expressed in another way, means that 73 percent of total sales to ultimate consumers were part of a wholesale electricity trade transaction which linked together the contract path from source generation to end-use consumption (Table 3).

Participation in wholesale, or bulk power, transactions has increased through the regulatory actions of the Federal Energy Regulatory Commission (FERC) when it started the process to authorize market competition for the wholesale trade sector of the electric power industry. Electric utilities, power marketers, and many industrial companies are buying and selling their power under the new rules for this market. There are now more power supply options (both for acquiring physical energy and financial protection). New competitive markets have also been proposed for electrical system support services. From this, the hope for the future is that competiton will lead to improved reliability.

The Electric Power Industry and Wholesale Trade

This publication on electric trade data provides information on the electric power industry during 1996. The information furnished provides important information on the wholesale structure found within the U.S. electric power industry. The patterns of interutility trade in the report support analyses of wholesale power transactions and provide input for a broader understanding of bulk power market issues that defines the emerging national electric energy policies. The report includes information on the quantity of power purchased, sold, exchanged, and wheeled; the geographical locations of transactions and ownership classes involved; and the revenues and costs. The utilities covered in this publication include all U.S. electric utilities in the 50 States and the District of Columbia. Electric utilities fall into four basic ownership classifications: investor-owned (privately owned), publicly owned, cooperative, and power marketers. Publicly owned utilities may be Federally owned, State-owned, or municipally owned.

In 1996, there were 3,195 electric utilities in the United States and 65 power marketers (active reporters for a grand total of 3,260). Of these, 2,020 were publicly owned (including 10 Federal utilities), 932 were rural electric cooperatives, and 243 were investor-owned utilities (Table 1). Some of these electric utilities have service territories extending beyond a single county or parish. Others just serve a municipality or part of a county. Many of the Nation's electric utilities are exclusively distribution utilities, that is, they purchase wholesale power from other utilities and distribute, on their own distribution lines, the electricity to ultimate consumers. Power Marketers do not have service territories, but can provide their services anywhere. This operating capability will become a model for many in the future.

However, the counts and responsibilities of these utilities are changing as the restructuring activities that are reshaping the electric power industry alter the traditional practices and service territory boundaries. Electric utilities are merging with others or are being acquired. And, some of these electric utilities are being directed (State government initiatives) to sell off their generating assets and focus the regulated part of the company on transmission and/or distribution (for example, in California and Massachusetts). Part of the reason for this sell-off is that there is a high concentration of the nation's total utility generation assets owned by a small ownership class of utilities. The belief is that under market competition, this concentration of capability would represent too much market power influence over charged prices. Whether this becomes a trend that other States follow is a question that currently has no answer. But, there are fewer than 1,000 ¹ of the 3,200 utilities in the United States engaged in power generation. These utility generating asset holdings represents 91 percent of the total industry's net summer capability in 1996.²

Changing Electric Power Industry

The electric power industry is undergoing fundamental changes reflected by its evolving structure. For many years, the industry was dominated by locally franchised, vertically integrated utilities, regulated by State regulatory agencies. This picture has changed and the pace of restructuring of the electric power industry in the United States has increased, with electricity generation markets being opened first to competition. The initial start that moved the industry toward competition stemmed from the unanticipated operational impacts of the Public Utility Regulatory Policies Act of 1978 (PURPA), which encouraged the supply of wholesale power to electric utilities from nontraditional sources (i.e., renewable energy sources). The FERC released two regulatory actions (Orders 888 and 889)³ that will alter wholesale trading practices and transmission access.

Trading Highlights

A large amount of the electricity generated in the United States is traded under wholesale purchases and sales for resale contracts. The vast majority of wholesale transactions for investor-owned, Federal, and cooperative utilities involve utilities within the same NERC regional boundaries (See Table 5). Much of the historical differences between intra- and interregional wholesale power transactions result from the independent development of multiple transmission links among clusters of neighboring utilities. The criteria that justified this construction could be described as being based upon the line use for reliability support, then, capacity transactions, and later split-the-savings energy transactions. Today, competitive market transactions are having the largest impact on interregional trade. There was a 216 percent increase in inter-regional trade by investor-owned utilities and a 51 percent increase by cooperatives since 1990. The impact of competition has also been felt in the firm and nonfirm categories of electricity transactions. The shift is evident in the percent change from 1990 to 1996. Nonfirm purchases and sale for resale increased by 126 and 79 percent, respectively, while firm purchases rose by 14 percent and sales for resale by 20 percent (Table 6).

In 1996, there was an increase of 23 percent in purchased power and exchanges received over the prior year. This trend held for sales for resale and exchanges delivered (26 percent). This percent increase from the year earlier was the largest single year increase and represents a significant increase in wholesale trade transactions when compared to all the prior year changes. The NERC regions of ERCOT, MAAC, NPCC, and WSCC all showed major increases. None of the contiguous NERC regions showed any declines (Table 4). Much of this change can be attributed to a shift in the electric utility industry's practices. Competition in the wholesale transaction markets had started to replace split-the-savings trading and exchange trades are disappearing.

Electricity purchases by investor-owned utilities have increased by 58 percent between 1990 and 1996. This change is illustrated in a regional comparison of purchases and sales for resale by investor-owned electric utilities (Table ES1) for 1990, 1992, 1994, and 1996. Transactions by investor-owned electric utilities represent over 51 percent of the transactions in the bulk power market (Table 2). Purchases from all sources by major investor-owned utilities totaled 369.9 billion kilowatthours of firm power for $18.6 billion and 496.6 billion kilowatthours of nonfirm energy for $13.6 billion in 1996 (Table 8). When miscellaneous transactions are included, these investor-owned utilities paid a total of $33.0 billion dollars for the purchase of 889.6 billion kilowatthours.

Investor-owned utilities exchanged approximately 69 billion kilowatthours of electricity with other utilities for both receipts and deliveries (Table 10). The most exchange activity occurred in ERCOT and WSCC, with 34 and 23 billion kilowatthours each in receipts and deliveries, respectively. Trade in the two regions accounted for 82 percent of exchanges with other utilities.

Federal utilites purchased 11.2 billion kilowatthours for $208.5 million dollars (Table 25), but sold 196.3 billion kilowatthours for $5.4 billion dollars. Cooperatives purchased 332.5 billion kilowatthours for $13.1 billion dollars (Table 14). The exchanges reported with noninvestor-owned utilities in 1996 (Table 11), were mostly by Federal utilities, accounting for about half of the exchanges. The next largest sector was the cooperative grouping.

Endnotes

1.Energy Information Administration Form EIA-860, "Annual Electric Generator Report."

2.Energy Information Administration, Annual Energy Review 1996, DOE/EIA-0384(96) (Washington, DC), p. 228.

3.Federal Energy Regulatory Commission, Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by Public Utilities, Order No. 888 and 889 issued in April 1996.

CONTACT

John Makens
john makens@eia.doe.gov
Phone: (202) 287-1749