Definition of terms
Following is a list of words and phrases that you may encounter in the news and on our Web
site as you read about the issue of utility competition. We hope these definitions help you in
understanding the changes taking place in the utility industry.
Aggregation: Combination of electric loads (for example, one customer
with multiple locations or multiple customers at one location) formed to gain a volume
purchasing advantage.
Arizona Corporation Commission (ACC): The ACC was created by the
Arizona Constitution to regulate public service corporations. Among its duties, the ACC
regulates investor-owned and cooperative electric utilities. This regulation includes
approving retail rates.
Competition (also known as retail competition): The concept under which
multiple sellers of electric power and services can sell directly to end-use customers. (See
also Direct access)
Cooperative (Co-op): A non-profit, customer-owned electric utility responsible
for distributing power, usually to rural areas. Some co-ops own generation and transmission, but
most purchase electricity in the form of federal preference power or from the wholesale market.
Most co-ops were set up under the Rural Electrification Act of 1934; this law made electric power
available to rural customers who may not have received service because they were more costly
to serve than the concentrated customers in urban areas.
Customer choice: An arrangement through which end-use customers can purchase
commodity electricity directly from any supplier in the competitive bulk-power market, rather than
from a local distribution utility. Also known as direct access.
Deregulation: The relaxation or elimination of regulation from a previously
regulated industry or sector.
Direct access: An arrangement through which end-use customers can
purchase commodity electricity directly from any supplier in the competitive bulk-power
market, rather than from a local distribution utility. Also known as customer choice.
Distribution: The process of delivering electricity from substations to customers.
The distribution system "steps down" power from higher-voltage transmission lines to a level that
can be used in homes and businesses.
Energy Policy Act of 1992 (EPAct): This law addresses a wide variety of
energy issues and creates a new class of power generators. In general, it makes entry into
generation much easier for all. It also calls for open transmission of wholesale power and
wholesale power wheeling.
Federal Energy Regulatory Commission (FERC): FERC regulates the price,
terms and conditions of wholesale power sold in interstate commerce and regulates the price,
terms and conditions of all transmission services. FERC is the federal counterpart to state utility
regulatory commissions such as the ACC.
Generation: The actual production of electricity, usually at power plants.
Grid: The transmission network (or "highway") through which electricity moves
from suppliers to customers.
Independent Power Producer (IPP): An entity which owns facilities to generate
electric power for sale to utilities and customers, but which does not have a service territory or an
obligation to serve customers.
Independent System Operator (ISO): An entity which operates transmission
systems for participating transmission-owning utilities and functions independently from those
utilities. ISOs are designed to ensure that transmission-owning utilities cannot use their own
transmission resources to gain a generation price advantage over other power suppliers.
Investor-owned utility (IOU): A utility operated by a public corporation in which
ownership shares are held by individual investors who supply the capital in expectation of earnings
on their investments.
Municipal utility (muni): A utility owned and operated by a municipal government,
or a municipal-type governing board. In most cases, municipal utility rates are set at the city level,
either by the municipal administration or by a local utility board or commission. SRP�s power
business is considered a municipal utility.
Non-utility generators (NUGs): NUGs are facilities for generating electricity that
are not owned exclusively by an electric utility and that operate connected to an electric utility
system. Included are qualifying cogeneration and independent power productions facilities under
PURPA (referred to as qualifying facilities or QFs), facilities installed under competitive bidding
processes and other IPPs.
Obligation to serve: Traditionally, in a regulated market, in exchange for
exclusive territory, utilities were required to serve everyone in their service territory. Utilities
also had to provide adequate service, and to render safe, efficient and non-discriminatory service.
Open access: A term generally applied to access to the transmission system for
all generators and wholesale customers. Also, the use of a utility�s transmission and distribution
facilities on a common-carrier basis at cost-based rates.
Power exchange (PX): In the deregulated California market, the PX was be a
separate, non-profit organization, which facilitated a short-term pool for commodity electricity
sales and purchases using a competitive open auction. The Power Exchange is now bankrupt, and
generation is currently being bought and sold by the California Department of Water Resources for
the investor-owned utilities.
Power marketers: Sales agents for electric power, typically not part of a utility.
Such entities are the middlemen between sellers and buyers. Unlike brokers, power marketers
take title to all power they transact.
Power marketing agencies (PMAs): Agencies of the Department of Energy that
market the electrical power produced at federal water projects or dams. By law, PMAs sell wholesale
power at cost to legally stipulated "preference" customers such as municipal utilities and rural coops.
Preference power: Power generated by federally owned facilities. Reclamation
law provides that public entities have preference in the allocation of this power, which typically is
cheaper than other sources.
Public power: Utilities that are locally owned and locally controlled, such as
cooperatives and municipal utilities. In some limited circumstances, state-level regulation applies.
These utilities often have access to power from federal hydroelectric projects and can obtain low
interest loans, and are exempt from income and other taxes at the federal and state levels. These
factors contribute to lower financing costs for plant and equipment.
Public service corporations: Investor-owned electric utilities and consumer-owned
electric cooperatives.
Reciprocal treatment: If another utility wants to offer generation services to
SRP�s customers, it must be willing to allow SRP or its affiliate to offer generation to that utility�s
customers in return.
Regional transmission group (RTG): A voluntary organization of transmission
owners, users and other entities interested in coordinating transmission planning, expansion,
operation and use on a regional and inter-regional basis.
Regulated utility: A company, privately or publicly owned, which provides
utility services such as electricity, gas, water or phone, to the public.
Regulatory compact: For decades, states and cities have regulated electric
utilities through a regulatory compact, through which utilities are granted service territories where
they have the exclusive right to serve retail customers. This means that utilities must ensure that
there are sufficient generation, transmission and distribution facilities/systems to serve all present
and future customers in the territory.
Reliability: The degree to which electric power is made available to those who
need it. Reliability may be measured by the frequency, duration, and magnitude of adverse effects
on consumer services.
Restructuring: The changes being considered in the set of regulatory and
statutory policies governing electric utilities in the U.S.
Retail customers: Customers, including residences and businesses, who
themselves use the electricity that they purchase; also known as end-use customers.
Retail market: A market in which electricity and other energy services are
sold directly to the end-use customer.
Retail wheeling: The process of moving electric power from a point of
generation across one or more utility-owned transmission and distribution systems to a
retail customer. (see Direct access)
Service territory: A geographic area where a regulated utility provides
electric service to all present and future customers in the territory (see Regulatory compact)
Stranded costs: Costs incurred by utilities to serve their customers with the
understanding that state regulatory commissions would allow the costs to be recovered through
electric rates. These costs may not be recoverable under retail competition because market forces
can keep prices down.
Supplier of last resort: Power provider designated to supply electricity to
customers using less than 100,000 kilowatt-hours per year whose suppliers are unwilling or
unable to supply continuing generation service; this designation ensures that no customers
are left without electricity through no fault of their own.
Tariff: A price or schedule of prices; also, contractual terms and conditions for
a defined service or set of services.
Transmission: The process that transports electric energy in bulk form, usually
at high voltages, from a source of supply to a distribution system.
Unbundling: The separating of the total process of electric power service,
such as generation, transmission, distribution and metering, into its component parts for the
purpose of separate pricing or service offerings.
Wheeling: The transmission of electricity by an entity that does not own
or directly use the power it is transmitting.