ELECTRIC POWER INDUSTRY SUPPLY COMPONENTS

The structure of the electric power industry is changing as the industry transitions from a regulated monopoly to deregulation and market competition. The traditional structure of the industry is based on the vertical integration of utilities, so that a single utility owns and operates each of the three components of the power supply function: the generation, transmission, and distribution. Under traditional regulation, each component of the utility is entirely regulated and consumers are protected through cost-based compensation to ensure that utilities are allowed only to recoup prudently incurred costs. With competition, utilities have separated or unbundled services based upon whether the service is competitive or a monopoly. Thus, generally, generators compete for customers to sell their produced electricity at market-based rates; transmission entities provide access to their transmission facilities to transmit this generation; and finally, distribution entities receive the transmitted electricity for redelivery to the end-user. In this competitive environment, the transmission and distribution functions remain regulated and subject to cost-based rates.

Generation

Generation facilities are owned and operated by two general categories of companies, utilities and non-utilities. Power generators use a variety of prime movers and energy sources to generate electricity. Prime movers are the shaft turning machines that drive electric generators, such as engines, turbines, and water wheels. The energy sources used to power the prime movers include: the combustion of fossil fuels, nuclear fission, kinetic energy in wind, potential energy of water, chemical energy from fuel cells, and solar energy.

Generating units vary in generating capacity based on the technology used and the associated cost considerations, load type, and intended usage. For example, nuclear and fossil-fuel, steam-electric units typically have large capacities that may exceed 1,000 megawatts ("MWs"), while hydroelectric dams range from less than one MW to several thousand MWs at some of the large Federal dams. Gas turbines, combustion turbines, and combined-cycle units are typically less than 200 MWs, while wind and solar plants are relatively small, with some smaller than 1 MW. Generating units also vary in generating capacity based on load type and intended usage. There are three major load types, categorized as base, intermediate, and peak load requirements. A base-load generating unit is normally used to satisfy all or part of the base or constant load on the system, and consequently, such units typically run continuously when not scheduled or forced offline due to maintenance. Conversely, peak-load generating units can quickly be brought on or off-line to meet varying demand requirements during periods of high or peak load demands. Peak-load units are normally smaller generating plants that use engines and turbines as prime movers. Intermediate-load generating units meet system requirements that are greater than base-loads but less than peak-loads. Intermediate-load units are operated during the transition demand between base-load and peak-load requirements, and are designed to have moderate generating flexibility.

Transmission

Transmission is the movement of electric power at high voltages over long distances from generating facilities to distribution system substations that are close to major load centers. The transmission grid consists of high voltage overhead and underground lines that customarily are made of either copper or aluminum. The voltage of the generated power is increased using step-up transformers, and the high-voltage current is delivered over the transmission grid to the load center, where the current is reduced using step-down transformers to the lower voltages required by distribution systems. High-voltage lines are used for transmission purposes, because high-voltage lines have high power carrying capacities and lesser line losses. Line losses result during delivery due to the resistance inherent in conducting lines, and some power is "lost" as dissipated heat created by the resistance.

Over the years, transmission lines have evolved into three major networks or power grids, and each power grid includes smaller power groups or power pools. The three network grids are: (1) the Eastern Interconnect, (2) the Western Interconnect, and (3) the Texas Interconnect. The three major network grids have some limited interconnection with each other through high-voltage connections between individual utilities that are designed to transfer electricity from one network grid to another. The Texas Interconnect ("ERCOT") has very limited interconnections with the other two networks. Further, the Western and ERCOT are linked with different parts of Mexico, and the Eastern and Western Interconnects are completely integrated with most of Canada and have links to the Quebec Province power grid. The interconnected nature of the transmission grid facilitates the buying and selling of power.

Distribution

Distribution is the redelivery of electricity from the transmission systems to end-use consumers. Distribution systems begin at substations, where high-voltage transmission power is reduced in voltage through step-down transformers for delivery to end-users over the lower voltage distribution lines. For power to be useful in a home or business, as it comes off the transmission grid it must be stepped-down to the lower voltages supplied through the distribution grid. The place where the conversion from "transmission" to "distribution" occurs is in a power substation. A power substation typically has transformers that step transmission voltages (in the tens or hundreds of thousands of volts range) down to distribution voltages (typically less than 10,000 volts). A power substation has a "bus" that can split the distribution power off in multiple directions. And it often has circuit breakers and switches so that the substation can be disconnected from the transmission grid or separate distribution lines can be disconnected from the substation when necessary.