How the Energy System Is Structured
The Federal Energy Regulatory Commission (FERC) is the United States federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce, and regulates the transportation of oil by pipeline in interstate commerce. FERC also reviews proposals to build interstate natural gas pipelines, natural gas storage projects, and liquefied natural gas (LNG) terminals, and FERC licenses non-federal hydropower projects.
The top priorities of FERC include:
• promoting reliable, efficient, and sustainable energy for consumers;
• ensuring just and reasonable rates, terms, and conditions;
• promoting safe, reliable, secure, and efficient infrastructure; and
• enforcing compliance with FERC rules and federal law by detecting and deterring energy market manipulation
A FERC Energy Primer provides a vivid description of the US energy system. Much of the wholesale natural gas and electric power industry in the United States trades competitively; some markets are established through administrative processes based on the cost of providing service. In competitive markets, prices are largely driven by the economic concepts of supply and demand. Underlying the supply and demand for energy are physical fundamentals — the physical realities of how markets produce and deliver energy to consumers and how they form prices.
Wholesale natural gas and electricity markets differ from other competitive markets, however, in critical ways. Demand is ultimately determined at the retail level. Retail use is relatively inelastic in the short-term, although this may be less so with some larger customers. Retail use of natural gas or electricity exhibits some unique characteristics: because consumers have limited ability to reduce demand, supply must match demand instantaneously, in all locations.
For natural gas, this means production, pipelines, and storage need to be sized to meet the greatest potential demand, and deliveries need to move up and down to match changes in consumption. Natural gas has underground and aboveground storage options and linepack, which involves raising the pressure in a pipeline to pack more molecules into the same space. Natural gas flows through a pipeline at velocities averaging 25 mph, depending on the pipeline and the configuration of related facilities, so new supply can take hours or days to reach its destination. That increases the value of market-area storage, which vastly reduces the distance and time needed for gas to reach consumers.
For electricity, storage is more limited, although technologies such as batteries and flywheels are being developed. Hydroelectric pumped storage is available in a few locations; this involves pumping water to high reservoirs during times of slack electricity demand, then letting the water flow downhill through electricity-generating turbines when demand for power rises. Generating plants, transmission and distribution lines, substations, and other equipment must be sized to meet the maximum amount needed by consumers at any time, in all locations. For all practical purposes, electricity use is contemporaneous with electricity generation; the power to run a light bulb is produced at the moment of illumination.
As of April 2016, coal provides 33% of the energy produced in the United States, natural gas provides 33%, nuclear provides 20%, hydropower and other renewables provide 13%, and the reamaing 1% comes from other gases and petroleum
Profiles of Leading Energy Companies
Duke Energy is one of the largest utilities, providing over 52,000 MW to over 7 million customers. Within the customer base, 6 million Duke Energy customers are residential consumers (over 24 million people), who are charged a higher rate per kWh than industrial, transportation, and commercial energy consumers. Duke is a publicly traded company on the Fortune 125 list. 95% of Duke energy production comes from nuclear and coal, with less than 2% coming from hydropower and renewables. Duke has made significant pledges to increase solar energy production in the future, alongside cleaning up coal production. However, in North Carolina where Duke is headquartered, third party electricity generation, such as installing residential solar panels, is illegal, leaving consumers the option of paying Duke the same kWh rate and bearing installation costs or registering as a public utility. This leaves little incentive for consumers to install renewable generators like solar or wind, rendering Duke a statewide energy monopoly. Further, Duke operates primarily in the South and Midwest region of the United States, where many states have not set standards and goals for renewable energy production.
Pacific Gas and Electric Company: States in other regions serviced by large utilities have set standards and goals for renewable energy production, such as in California where Pacific Gas and Electric Company (PG&E) operates. PG&E is a subsidiary of Pacific Gas and Electric Corporation, a publicly traded holding company. With over 5 million customers, PG&E provides over a third of its energy from renewable resources and hydropower and 23% from non-emitting nuclear. A quarter comes from combined coal, natural gas, and oil production. As a company, PG&E appears committed to policy infrastructure for energy production that does not exacerbate climate change. They left the US Chamber of Commerce in 2009 when the lobbying organization opposed climate legislation, and publicly cut ties to the American Legislative Exchange Council (ALEC), a corporate lobbying organization that actively engages in underwriting climate denialist bills and opposes the US Clean Power Plan. http://www.pg&ecorps.com
PG&E has taken advantage of many of the tax incentives for developing renewable energy production and infrastructure resulting from the 2009 US Climate Action Plan, as have many smaller independent energy companies. The 2015 Clean Power Plan would provide greater incentives for established and new energy companies to invest in renewable and clean energy production, but is currently under review, facing opposition from lobbying organization like ALEC, to which Duke Energy is a contributor. Despite stalling at the federal level, many states have taken action to establish renewable energy standards and offer incentives to companies towards those goals, primarily outside of the South. Some start up renewable energy companies have seen staggering growth up to 5000%. Wind power is slated by the US EIA to have the greatest increase in the future.
Submitted by Climate Scorecard Country Manager Ben Carver