Electricity Supply

Seeking to reap the potential benefits of greater competition, proposals to exempt some electric generators from the ownership restrictions of the Public Utility Holding Company Act of 1935 could alter the structure of the nation's $170 billion electric utility industry. This report evaluates how the proposals might affect (1) the reliability and cost of the U.S. electricity supply and (2) state and federal regulation of electric utilities.

GAO found that: (1) the proposed amendments are designed to lower electricity supply costs by expanding opportunities for competition among wholesale power supplies; (2) the proposed amendments' reliability and cost impacts depend on the specific provisions that are enacted, the extent to which utilities and other companies participate in wholesale power markets, and the arrangement of transactions; (3) the proposed amendments would increase the number of wholesale suppliers and the portion of electricity generated for wholesale consumption; (4) although nonutility suppliers are not required to provide reliable electrical service, state regulators and utilities have taken steps to ensure that nonutility suppliers operate reliably; (5) the amendments' potential effects on electricity supply costs depend on changes in competition, wholesale suppliers' long-run performance, and the effectiveness of federal and state regulation; (6) past utility experiences suggest that qualifying facilities and non-utility suppliers can supply electricity at a cost that is acceptable to state regulators; (7) an increase in wholesale power purchases could increase state regulatory responsibilities and reinforce a trend among state regulators toward reviewing utilities' selection of suppliers; (8) at the federal level, the enactment would increase the Federal Energy Regulatory Commission's role, relieve the Securities and Exchange Commission of overseeing utility holding companies' acquisition of wholesale facilities, and enable other companies to own and operate wholesale facilities without becoming subject to PUHCA; and (9) federal and state regulators should ensure that utilities do not give affiliated suppliers an undue advantage over other potential suppliers and that holding companies do not unfairly allocate expenses to their utility subsidiaries.