The Energy Policy Act of 1992 (EPAct)

This act, often called EPAct, was passed to enhance competition in the electric business. It provided for a new class of generator owner (called an exempt wholesale generator) that could be free of many of the requirements placed on electric utilities. But perhaps even more important, EPAct made it clear that the transmission owners are required to provide service to these new, competitive entities. In other words, the transmission business has to operate as a common carrier for electric service; no longer can the transmission owner give priority or preferential treatment to an affiliated generator.

Following is a simple example of this issue. Imagine that, prior to EPAct, the ABC generation company wanted to build a power plant within the boundaries of transmission owner TAB. Also assume for now that the owner of the transmission in the area, TAB, was a vertically integrated utility with no statutory requirement to buy the output of the new plant. ABC wants to sell the output to TAB, but the negotiations break down when it becomes clear that TAB won’t pay enough for ABC to make an adequate return on the investment. So now ABC wants TAB to “wheel” the power to a neighboring utility, that is, to transmit the power over TAB’s transmission system to another entity. There is no requirement that TAB should do this for ABC, so TAB determines that there is no transmission capacity available to wheel the power. ABC is stuck with the low offer made by TAB if they still want to build the plant (of course, with this playing field, the plant would never be built).

I would like to add that prior to EPAct there was a law passed that would provide for certain plants to sell to the local utility. The Public Utility Regulatory Policies Act of 1978 (PURPA) would have provided for the statutory requirement for the local utility to purchase the output (at “avoided cost”) if the plant met certain criteria such as cogeneration, where steam or heat was sold as a by-product of generating electricity. PURPA did not go so far as to require wheeling the power across the grid, however.

Now EPAct comes along in 1992 and says that FERC should require all transmission owners to provide open access to the transmission grid for all generating companies. Once it became clear to those of us in grid operations what this act mandated, we realized that wholesale competition was coming soon. But to be honest, we had no idea of the complete ramifications of EPAct.