Historical Context of Energy Regulation:
• What is energy?
• How have humans harnessed energy for their own use?
• How and why do governments intervene in the market to control the use and development of energy resources?

What is energy?
Energy = the ability to do work
From where do humans get useable energy?

PATH OF ENERGY
SUN  Solar energy  EARTH’S SURFACE
Ocean absorption: heat and convection currents
Land absorption: heat absorbed by animals, plants, etc.
Energy is stored in “stocks” of energy resources, like combustible (fossil, biomass) fuels (Btu), water power, etc.

1 st & 2 nd LAWS OF THERMODYNAMICS
FIRST LAW OF THERMODYNAMICS : “Energy can neither be created nor destroyed, only converted from one form to another.”
SECOND LAW OF THERMODYNAMICS : “As energy is converted from one form to another, the availability of energy (and the useable amount) decreases.” (a/k/a the law of “entropy”).

• GRAVITATIONAL
• MECHANICAL
• ELECTRICAL
• THERMAL
• CHEMICAL
• NUCLEAR

PRIMARY SOURCE
1.
HYDRO (falling water) or WIND
USEFUL ENERGY
USE
Mechanical energy for industrial use (e.g., mills) or to run electricity-generating turbines
2.
COAL, OIL,
NATURAL GAS, WOOD,
BIOMASS, etc.
Combustion to produce useable heat or to generate electricity
3.
URANIUM
4.
SOLAR
Controlled atomic reaction releases heat to produce electricity
Passive solar heat used directly; or converted chemically (active solar) to electricity (by photovoltaic cells).

U.S. Energy Timeline
1700s
1859
1865
1882 first use of hydromechanical power
Edwin Drake struck oil in western Pennsylvania
First natural gas utility opened in Fredonia, NY
Edison’s Pearl St. Station power plant opened
Late 1800s First hydroelectric stations
1880s Rise of state utility commissions ; passage of federal major antitrust legislation
1930s Federal Power Act; Rural Electrification Act;
Public Utilities Holding Co. Act

Source: EIA

SOURCE=EIA

Electric
Generation
Fuel
Sources,
Worldwide
Source: IEA Key
World Energy
Statistics 2001

Share of U.S. Net Summer Electric Generating
Capacity by Energy Source, Year-End 1999 (EIA)

Electricity Generating Capacity by Industry Sector and
Ownership, as of January 1, 1999 (Source=EIA)

Extraction of primary source fuels
Regulate externalities
Commercial or residential end use
Transformation into electricity
Regulate competition

ENERGY LAW addresses the development, distribution and sale of energy resources.
• externalities of energy production
• pollution
• safety and health risks (workers)
• regulation of competition
• public utility law
• state ownership
• antitrust/competition law

EXTERNALITIES
1.
HYDRO
 Aquatic/terrestrial habitat destruction; aesthetic
2.
WIND
 Primarily aesthetic
3.
COMBUSTION
(COAL, OIL,
 COMBUSTION: Air pollution (SO2,
NOx, global warming); Water pollution; aesthetic impacts
NATURAL GAS,
WOOD, BIOMASS, etc.)
EXTRACTION: habitat destruction; aesthetic; water pollution
4.
URANIUM  EXTRACTION: water pollution; habitat destruction; aesthetic. USE: nuclear waste
5.
6.
SOLAR  aesthetic; waste production (photovoltaic cells)
TRANSMISSION  aesthetic; EMR?

POSSIBLE LEGAL RESPONSES TO
EXTERNALITIES
1. PIGOVIAN TAXES : tax creator of externality an amount that maximizes “social net benefit”
2. REGULATION :
• Prescriptive and proscriptive rules
• e.g., licensing statutes allow regulatory agencies to impose conditions to minimize/”internalize” externalities
3. STATE OWNERSHIP
4. PRIVATE LAW (TORTS)

EXTERNALITY REGULATION: JURISDICTION (U.S.)
1.
HYDRO (falling water) or WIND
2.
COAL, OIL,
NATURAL GAS, WOOD,
BIOMASS, METHANE
HYDRO: FERC & STATES, subject to preemption limits
WIND: LOCAL GOVERNMENT
State
Extraction of fuels: DOI and states, subject to preemption ownership is
Combustion: EPA and STATES norm elsewhere
3.
URANIUM
NRC with limited STATE jurisdiction
4.
SOLAR
LOCAL GOVERNMENT (zoning)
Other nations: state may owns/supply energy resources, and regulate externalities

– PUCs, controlling natural resources
– Hydro, Energy Transactions

Menu of options for addressing the dangers of monopoly and unfair competition:
• manage private competition ex post
(antitrust law)
• manage private competition ex ante (public utility/common carrier rules)
• state ownership