Glossary of Terms

Glossary of Terms

Ancillary Services-Those services necessary to support the transmission of energy from resources to loads while maintaining reliable operation of transmission providers's transmission systems in accordance with good utility practice. Some ancillary services such as reactive power support and frequency regulation are required to regulate the power system. Others such as operating reserves are required to provide reserve capabilities to help sustain the power system in the event of a major system disturbance or the loss of critical facilities.

Avoided Cost-Avoided cost is the incremental cost to an electric utility of new generation or transmission capacity, or both, which the utility avoids through conservation or the purchase of power from another source.

Bilateral Contract-A bilateral contract is a contract between two parties. In a competitive electricity market, bilateral contracts are agreements between power suppliers and customers that specify the price, terms and conditions for delivery of electric service.

Btu-A British thermal unit. The BTU is a common measure of energy content that can be applied to various forms of energy such as electricity or natural gas. One BTU is defined as the quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Capacity Factor-The ratio of the net energy produced by a generating facility to the amount of energy that could have been produced, in the absence of any scheduled or unscheduled outages, in any selected time period. Net capacity factor equals net power generation in the period divided by the produce of [number of hours in the period and net dependable capacity], where net power generation is gross station output less in-station electricity consumption.

Certificate of Public Convenience and Necessity (CCN)-Authorization from a commission allowing ownership, construction, and operation a company for the purpose of providing utility services to the public within a designated area. The utility would then be under commission jurisdiction. It must then abide by the commission's rules and regulations regarding rates and service.

Cogeneration-Cogeneration is the simultaneous production of power and thermal energy from the same source. Typically, cogeneration will use a natural gas fueled turbine to generate electricity and its hot exhaust gas is used to generate steam for process use or for heating. Under PURPA, electric utilities are required to purchase cogenerated power at or below their avoided cost.

Coincident Peak Demand (CP)-The hourly demand of a component of system load at the hour of system peak demand within a specified interval of time.

Combined Heat and Power - Combined heat and power (CHP), also known as cogeneration, is an approach to generating power and thermal energy from a single fuel source. CHP is not a specific technology but an application of technologies to meet an energy user's needs. CHP systems achieve typical effective electric efficiencies of 50 to 80 percent - a dramatic improvement over the average efficiency of separate heat and power. Since CHP is highly efficient, it reduces traditional air pollutants and carbon dioxide, the leading greenhouse gas associated with climate change.

Commodity Electricity (or "Brown Power") - Is physical electricity in the absence of the technological, environmental, social, and economic benefits associated with a specific generation source.

Construction Work in Progress (CWIP)-An accounting method that authorizes recovery through customer rates of money used for construction of facilities while they are being built. In some states, utilities are allowed to place these costs into rates while facilities are being constructed. But where they are not, the utility is allowed to book Allowance for Funds Used During Construction (AFUDC).

Cost of Capital-The minimum rate of return needed to attract investors. The real cost of capital is determined by investors and is based on their perception of the risk of the investment. The riskier the investment appears, the higher the return required by investors. 

Cost of Service-A utility's cost to provide service to its customers, including return and operating expenses. A cost of service study determines the company's cost of providing service to particular classes of customers.
Customer Charge-A monthly charge to cover a portion of the fixed costs of providing service to a customer. This charge is applied to the customer's bill regardless of whether any of the utility's service is used in a particular month.

Customer Choice-Customer choice means the freedom of a retail customer to purchase electric services, either individually or on an aggregated basis, from the competitive provider or providers of the customer's choice.

Demand-The rate of electric power use measured in kilowatts (kW) or kilovoltamperes (kVA).

Demand-Side Capacity Option-A program proposed by a utility or the commission for the reduction of future electricity requirements the utility's customers would otherwise impose, including, but not limited to energy efficiency and energy management options (together known as demand-side resources). Cogeneration and renewable resource technologies are generally included among supply-side resources because they add to the total amount of electrical energy produced by society.

Demand-Side Program-A utility program designed to implement demand-side measures.

Depreciation-The decline over time in the value of utility assets due to technological obsolescence and deterioration.

Distributed Generation - Small, modular, decentralized, grid-connected or off-grid energy systems located in or near the place where energy is used.

Dynamic Scheduling-The provision of the remote load regulation for a load.

Energy-The total amount of electric power that is generated or used over a specified interval of time measured in kilowatthours (kWh).

Energy Imbalance Service-The provision of energy to correct for differences between the energy scheduled for delivery by a supplier and the actual amount of energy delivered to the supplier's load(s). This service is necessary to maintain supply and demand equilibrium within a control area and prevent declines in system frequency.

Equivalent Availability-The availability of a generating facility in any selected time period, considering both scheduled and unscheduled, partial and full outages. The equivalent availability factor equals the [service hours plus reserve hours minus equivalent derated hours] divided by the number of hours in the period, where service hours are the hours the unit is electrically connected to the load, reserve hours are the hours the unit is shut down for economic reasons and equivalent derated hours are the number of forced or scheduled derated hours times megawatt reduction divided by the maximum dependable capacity.

Exempt Wholesale Generator (EWG)-Any person determined by FERC to be engaged directly, or indirectly through one or more affiliates and exclusively in the business of owning or operating, or both owning and operating all or part of one or more eligible electric generating facilities and selling electric energy at wholesale. An EWG is a new type of independent power producer authorized by the Energy Policy Act of 1992 that generates electric energy for sale at wholesale, but does not own transmission facilities. An EWG is not necessarily a cogenerator, and therefore is not required to have a steam host.

Externalities (or External Costs/Benefits)-Those environmental and social costs or benefits of energy which result from the production, delivery, or reduction in use through efficiency improvements and which are external to the transaction between the supplier (including the supplier of efficiency improvements) and the wholesale (e.g., utility) or retail (e.g., ratepayer) customer. Externalities may be quantified and expressed in monetary terms where possible. Those externalities that cannot be quantified or expressed in monetary terms may be qualitatively considered in the societal cost test to develop resource plans.

Federal Energy Regulatory Commission (FERC)-The federal agency that regulates interstate services provided by the natural gas and electric industries. 

Fuel Adjustment Clause-In some states this is also called an ECA or Energy Cost Adjustment. This is a mechanism which allows electric utilities to automatically increase or decrease charges for electricity to account for fluctuations in the cost of fuels necessary to produce or purchase electricity.

Functional Unbundling-This method of unbundling, which has been required by the FERC at the wholesale level, allows the utility to retain ownership of its generation, transmission, distribution, and merchant functions while maintaining operational separation between these functions and requiring them to provide service to non-affiliates in a comparable, non-discriminatory manner. Functional unbundling is typically enforced through affiliate transaction guidelines and codes of conduct governing the exchange of information and physical separation of personnel among the utility's functionally unbundled units.

Gas Cost Adjustment-In some states this is also called a PGA or Purchased Gas Adjustment. This is a mechanism which allows local natural gas distribution companies to automatically increase or decrease charges for natural gas to account for fluctuations in wholesale gas prices charged by suppliers to the local distribution company. 

Global Warming Potential (GWP) - Global Warming Potential (GWP) is defined as the cumulative radiative forcing effects of a gas over a specified time horizon resulting from the emission of a unit mass of gas relative to a reference gas. The GWP-weighted emissions of direct greenhouse gases are presented in terms of equivalent emissions of carbon dioxide (CO2). The following table contains the GWP for major greenhouse gases as measured over a 100-year time period.

Carbon Dioxide 1
Methane 25
Nitrous Oxide 298
HFC-134a (hydrofluorocarbon) 1,430
HFC-23 (hydrofluorocarbon) 14,800
Sulfur Hexafluoride 22,800


Greenhouse Gases (GHGs) - Gases in the Earth's atmosphere that produce the greenhouse effect. Changes in the concentration of certain greenhouse gases may increase the risk of global climate change. Greenhouse gases include water vapor, carbon dioxide, methane, nitrous oxide, halogenated fluorocarbons, ozone, perfluorinated carbons, and hydro fluorocarbons.

Green Power - Renewable energy resources such as solar, wind, geothermal, biogas, biomass, and low-impact hydro generate green power. A green power resource produces electricity with zero anthropogenic (i.e., human-caused) emissions. The definition of green power may vary depending upon the particular application or compliance market.

Independent Power Producer (IPP)-A supplier of electricity from an electric plant that is not directly owned and operated by a utility for serving its retail customers, and not a utility operating company that sells electricity as part of an affiliated utility operating company system. Independent power producers include non-utility generators and exempt wholesale generators.

Independent System Operator (ISO)-A centralized entity, independent from industry stakeholders, that operates but does not own a transmission network for the purpose of facilitating power transactions, managing electricity flows, and ensuring reliability. In most models, the ISO would not have any direct involvement in economic dispatch or power transactions.

Indirect Costs-These are costs which result from utility actions but are not paid directly by either the utility or the customers. Indirect costs include such items as the environmental impacts of air pollutant emissions from power plants, land use disruptions from building power plants and transmission lines, and similar generalized costs.

Integrated Resource Planning (IRP)-A utility resource planning process in which an integrated combination of demand-side and supply-side resources is selected to satisfy future energy service demands at least-cost (considering both direct and indirect costs), balancing the interests of utility customers, utility shareholders and society-at-large. In IRP, all resources reasonably available to reliably meet future energy service demands are considered by the utility on a fair and consistent basis. 

Interconnection Agreement-An agreement that sets forth requirements for physical connection between an eligible transmission customer and transmission providers. Transmission providers must have such an agreement with all transmission providers to whom they are physically interconnected.

Interim Rates-If a utility proves that it needs an immediate rate increase to prevent a financial crisis, a commission may allow a higher rate to go into effect on an "interim" or temporary basis. Interim rates are usually implemented while application for a permanent increase is being considered. They are often granted on the condition that the company refund to customers, with interest, any amount of the increase that exceeds the permanent rates approved by the commission. 

Intervenor-Someone who files to participate in a proceeding before a regulatory commission. Intervenors are usually large business customers, government agencies, or representatives of a customer group with a particular interest in the outcome of the case. Granted intervention in a rate case, a party may present testimony, submit exhibits, and cross-‘examine witnesses during hearings. In some states, citizens and the general body of ratepayers are represented through an independent organization or state agency whose purpose is to advocate interests of the general public before the commission. 

Kilowatthour (kWh)-One thousand watts of electric consumption for 1 hour. Electric bills are measured in kilowatt-hours.

Levelized Cost-The dollar amount of a fixed annual payment for which a stream of those payments over a specified period of time is equal to a specified present value based on a specified rate of interest.

Life-Cycle Cost-The present worth of costs over the lifetime of any device or means for delivering end-use energy service.

Load Aggregators-Competitive firms that group consumers together as a service in order to increase the bargaining power of subscribing consumers.

Load Duration Curve-A plot of ranked hourly demand versus the number of hours in which demand was greater than or equal to that value over a specified interval of time.

Load Factor-The average demand over a specified interval of time divided by the maximum demand in the interval.

Load Following Service-Provides hour-to-hour changes in the output of generating unit to match changes in the load being served.

Load Schedule Imbalance-Service compensates for energy mismatches between the scheduled and actual transmission of power between the seller of power and a provider of transmission service in the load host's control area.

Load Serving Entity (LSE)-An entity that sells electricity to end-use consumers, buys or procures electricity from generators, and arranges for the delivery of electricity with either the transco, disco or the ISO. In effect, LSEs are the retailers of electricity. In certain market structures, the LSE may also provide customer services. If a vertically integrated utility chooses to be an LSE, that function will be provided by a separate entity from the distribution utility.

Locational Marginal Cost Pricing-A transmission pricing method that includes a component, typically labeled a "congestion charge," calculated to reflect the marginal cost of relieving a transmission constraint through redispatch or transmission expansion. Under this pricing regime, separate congestion charges that change over time are calculated for the various interfaces in the regional transmission system. Advocates of this pricing approach argue that it provides proper price signals for more efficient use of a constrained transmission grid for power trading activity. In regions where this pricing method has been approved, such as the Pennsylvania-New Jersey-Maryland (PJM) Interconnection, it has been widely criticized for perpetuating the market power of incumbent utilities who control constrained transmission facilities.

Marginal Cost-The change in total cost that results from providing one additional unit. 

Market Power-The ability to distort the performance of competitive markets through unilateral or coordinated action by market participant(s).

MCF-An abbreviation meaning 1,000 cubic feet, usually used as a unit of measure for natural gas.

Net Metering - A method of crediting customers for electricity that the customer generates on site in excess of their own electricity consumption. Customers with their own generation offset the electricity they would have purchased from their utility. If such customers generate more than they use in a billing period, their electric meter turns backwards to indicate their net excess generation. Depending on individual state or utility rules, the net excess generation may be credited to their account (in many cases at the retail price), carried over to a future billing period, or ignored.

"New" Renewables -
The voluntary green power market came into existence in the late 1990's. January 1, 1997 is considered a definitive point in time when green power facilities could be adequately identified as having been developed to serve the green power marketplace. Green power facilities placed into service after January 1, 1997 are said to produce "new" renewable energy. The "new" criterion addresses certain additionality requirements for the voluntary market.

Nominal Dollars
-Future or then-current dollar values that are not adjusted to remove the effects of anticipated inflation.

Non-Bypassable Charge-A method of recovering utility stranded costs that assigns such costs to all customers that take transmission or distribution service from the incumbent electric utility.

Non-Utility Generator (NUG)-A NUG is a non-utility that produces power for its own manufacturing operations or for sale in competitive markets. NUGs include cogenerators, small power producers, exempt wholesale generators, and self-generators.

Operating Reserves-The reserve above firm system load necessary to provide for: (1) regulation within the hour to cover minute to minute variations; (2) load forecasting error; (3) loss of equipment; and (4) local area protection.

Peak Demand-The maximum amount of utility service used by utility customers at a specific time.

Power Factor-A multiplier that indicates what part of the total "apparent" power flowing in an alternating current (AC) circuit, as measured in kVA, is real power, as measured in kW. Low power factor (either leading or lagging) is detrimental because it reduces the capacity of the power system to carry kilowatts of useful power.

Power Marketer-A power marketer is an entity that purchases and sells electric energy at wholesale, and takes ownership of the electric energy in the process, but is not a public utility.

Power Merchant-A power merchant is a competitive entity that produces, generates, sells, or furnishes electricity to retail customers for compensation. Power merchants consist of the sales function of the incumbent utility, consumers acting on their own behalf, and power brokers, marketers, and aggregators.

Power Pool-The interconnected electric-power generation and transmission networks of electric utilities that coordinate power generation and dispatching activities in order to achieve the best possible efficiencies. 

Qualifying Facility (QF)-A cogeneration or small power production facility which has met the operating, efficiency and ownership criteria established by FERC under PURPA either through self-certification or in a formal certification issued by FERC.

Ratchet-A rate design mechanism that sets a customer's billing demand at 100% (or some other fraction) of the customer's highest demand during some historic period.

Rate Base-The dollar value of a utility's physical facilities and operating capital used to provide safe and adequate service to customers.

Rate Design-The process of determining how a revenue requirement will be allocated among the company's different customer classes, such as residential, industrial, and commercial.

Rate of Return-The amount, expressed as a percentage of rate base, a utility earns on money it has borrowed and money invested by shareholders. When a regulatory commission establishes an authorized rate of return, utilities are not guaranteed a profit, they are only given the opportunity to earn a reasonable return on their investments.

Rate Stabilization Plan-A plan in which a utility pledges to maintain existing rate levels for a specified period or to implement moderate, scheduled rate increases over a specified period. In return for that pledge, the utility generally receives certain economic benefits, for example, flexible pricing alternatives.

Real Time Pricing (RTP)-Tariffs in which electricity prices track an electric utility's current hourly cost of producing and delivering electricity.

Regulatory Assets-In the electric industry, these are assets that are created when regulators allow a utility to defer recovery of certain costs to future periods. Generation-related regulatory assets can comprise one component of utility stranded costs.

Reliability Council-The organization that has traditionally been responsible for maintaining an uninterrupted supply of electricity within a particular region of the country. These councils maintain regional reliability by coordinating the policies of member utilities to insure that the region has adequate generation and transmission resources to meet the demand for power within the region at all times, including during system emergencies. There are ten regional reliability councils covering the continental United States, as well as Canada and portions of Mexico. While these organizations are voluntary, they grant full membership and voting powers only to utilities within the region that own significant generation and transmission facilities. Therefore, they are dominated by incumbent utilities. 

Renewable Energy - The term renewable energy generally refers to electricity supplied from renewable energy sources, such as wind and solar power, geothermal, hydropower, and various forms of biomass. These energy sources are considered renewable sources because their fuel sources are continuously replenished.

Renewable Energy Certificates (RECs) -
Also known as green tags, green energy certificates, or tradable renewable certificates. RECs represent the technology and environmental attributes of electricity generated from renewable sources. RECs are usually sold in 1 megawatt-hour (MWh) units. A certificate can be sold separately from the underlying generic electricity with which it is associated. Once the REC is sold separately from the underlying electricity, the electricity is no longer considered renewable. RECs provide buyers flexibility to offset a percentage of their annual electricity use when green power products may not be available locally.

Request for Proposal (RFP)
-A formal written document submitted to other utilities and other third-party providers of energy services (e.g., cogenerators, independent power producers, EWGs, energy service companies, etc.) seeking proposals to seek supply-side and/or demand-side capacity resource(s) in order to meet the electrical requirements of the retail customers of a utility.

Return on Common Equity (ROE)-That portion of the company's overall rate of return that is used to pay shareholders for their investment in the utility.

Revenue Requirement-The amount of money a utility must collect from its customers to pay expenses and provide a fair return to investors.

Spinning Reserve-Net generation capability on line that is not loaded but could be loaded, interruptible loads that can be curtailed within ten minutes, or capacity that can be obtained through a DC tie within a specified time.

System Lambda-A measure of the marginal cost of generating electricity on a utility's system.

Take-or-Pay-A clause contained in a natural gas supply contract which states that the purchaser will, for a specific period of time, pay for a minimum amount of natural gas whether or not delivery is accepted. 

Tariff-Information on file with a regulatory commission which describes the rates and charges of a utility along with the rules and regulations of that company.

Test Year-The 12 month operating period used in a utility rate case to evaluate the cost of service and the adequacy of the rates a utility is charging or proposes to charge.

Time of Day Rates-Charges for electric service that vary with the time of day. Under time of day rates, energy prices are greater during high or "peak" use hours to reflect higher production, transmission and distribution costs.

Total Resource Cost Test-A test of the cost-effectiveness of demand-side programs that compares the sum of avoided utility costs to the sum of all incremental costs of end-use measures that are implemented due to the program (including both utility and participant contributions), plus utility costs to administer, deliver and evaluate each demand-side program to quantify the net savings obtained by substituting the demand-side program for supply resources.

Transmission Losses-Energy losses resulting from the transmission of power over the interconnected transmission network. Generators providing power to the network must generate sufficient energy to offset such losses on an instantaneous basis, and this rule prescribes the compensation for persons that generate the energy to offset such losses.

Voltage Support Service-The use of capacitors or generators to supply reactive power for the purpose of maintaining voltages on the transmission grid within acceptable limits. The FERC considers voltage support supplied by generators to be an unbundled ancillary service. Because voltage support cannot be provided over long distances, some generators are uniquely situated to provide this service to specific loads. This service is also known as reactive power service. 

Watt-An electrical measurement of power. A kilowatt equals 1,000 watts while a megawatt equals 1,000,000 watts.

Wheeling-The transportation of electric service (from or to) over the transmission lines of a utility to another customer or utility by a third party.


References:    BAI, Georgia Public Service Commission Rules on Integrated Resource Planning, October 15, 1991; Missouri Public Service Commission Rules on Electric Utility Resource Planning, March 29, 1993, Texas PUC Substantive Rules § 23.67 and § 23.70.

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