4.1. ERMUSR 02-11-2014 - Laserfiche WebLink

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and new methods of producing low cost electricity; (v) increased competition from independent power producers, marketers and brokers; (vi) "self-generation" by certain industrial and commercial customers; (vii) issues relating to the ability to issue tax-exempt obligations; (viii) severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects financed with outstanding tax-exempt obligations; (ix) changes from projected future load requirements; (x) increases in costs; (xi) shifts in the availability and relative costs of different fuels; and (xii) global warming and the future legislation and regulations that target contributions made by coal-fired and other fossil fueled generating units. Any of these factors and the factors discussed herein (as well as other factors) could have an effect on the financial condition of the Electric System of the Utility. The Utility and other electric utilities are subject to various federal and state laws requiring compliance with environmental rules and regulations. In addition, the Utility is also subject to various federal and state laws relating to its facilities as well as various federal and state laws which affect the construction and operation of its facilities. Energy Policy Act of 1992 The Energy Policy Act of 1992 (the "Energy Policy Act of 1992") made fundamental changes in the federal regulation of the electric utility industry, particularly in the area of transmission access under Sections 211, 212, and 213 of the Federal Power Act. The purpose of these changes, in part, was to bring about increased competition. While the Utility could contest before the Federal Energy Regulatory Commission ("FERC") or in federal court any application under Sections 211, 212 and 213 of the Federal Power Act on jurisdictional, procedural or substantive grounds, those Sections of the Federal Power Act provided the FERC with the authority, upon application by an electric utility, federal power marketing agency, or any person generating electricity for sale or resale, to require a transmitting utility such as the Utility to provide transmission services to the applicant at rates, charges, terms and conditions set by FERC based on standards and provisions in the Federal Power Act. However, the Energy Policy Act of 1992 specifically denied the FERC the authority to mandate "retail wheeling," under which a retail customer of one utility could obtain power from another utility or non-utility power generator. On April 24, 1996, the FERC issued two final rules. The final rules effected significant changes in the regulation of transmission services provided by public utilities (as defined in the Federal Power Act) that own, operate or control interstate transmission facilities and which are subject to the FERC jurisdiction over wholesale contracts, rates and services ("jurisdictional utilities"). The Utility is not a public utility, as defined by the Federal Power Act, and is not a jurisdictional utility under the Federal Power Act for its sales or generation of power. One of the final rules, Order No. 888, (i) requires the provision of open access transmission services on a nondiscriminatory basis by all jurisdictional utilities by requiring all such utilities to file tariffs that offer other entities seeking to effect wholesale power transactions the same transmission services they provide themselves, under comparable terms and conditions, and (ii) may require a non-jurisdictional utility, such as the Utility, that purchases transmission services from a jurisdictional utility under an open access tariff and that owns or controls transmission facilities to, in turn, provide open access service to the jurisdictional utility under terms that are comparable to the service that the non-jurisdictional utility provides itself. This is referred to as the reciprocity requirement. Order No. 888 also includes provisions which, in effect, would permit jurisdictional utilities to recover under certain conditions so-called "stranded costs" for generating and other facilities from wholesale customers of a utility which use open access transmission service to purchase from other power suppliers. - 6 - 87