Utility Lingo Simplified

The unique language of energy in the utility business.

Table of Contents

A Word About Special Words

In the old world - the days before computers, the Internet, personal digital assistants and wireless gadgets galore - there was little need to discuss or understand all the little details about the worlds of energy and utilities. Your lights came on when you flipped the switch. Your gas furnace went on when the weather turned cold. And you received your bills, and paid them, by mail or in person at a local office. There was little need to learn more and more about how all these things worked.

Today people are talking a lot about the new world of utilities. Mention the word "deregulation" and the conversation quickly shifts to the rise and rapid fall of Enron or the just-as-rapid ousting of former California Governor Gray Davis. Mention the words "power grid" and your conversation likely will shift to discussing the reasons the lights suddenly went out in the fall of 2003 in two countries, including eight Northeastern states, leaving 50 million people unable to go about their normal activities.

So, there's a lot to learn about the world of utilities and the power it wields. That's where this glossary fits. No one source can give you all the details. This small volume is just the beginning.

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Stuff You Might Want To Know (But Didn't Know How Or Whom To Ask)

Kilowatt-hour

The amount of electricity used to keep a 50-watt bulb burning for 20 hours.

One pound

The amount of coal it takes to produce one kilowatt-hour of electricity.

1,000 cubic feet

Enough natural gas to meet the needs of an average American home (heating, water-heating, cooking and clothes drying) for four days.

$555

How much it will cost to heat an average home in 2004 using natural gas, vs. $1,400 if you used an electric resistance furnace, or $931 if you used a propane furnace, according to the American Gas Association.

945,000 megawatts

The total power that U.S. generating plants were capable of producing in the summer of 2003.

300,000 megawatts

The amount of announced new generation capacity planned for 2004.

11 percent

The share of all the electricity produced in the United States that is used for lighting. (15 percent is used for air conditioning, and 10 percent is used for heating.)

14 percent

The estimated share of U.S. power consumption now used by computers and Internet-related activities, compared with only 4 percent 10 years ago.

1879

The year Thomas Alva Edison perfected the incandescent light bulb, which marks the unofficial beginning of the world of electricity.

1882

The year Pearl Street Station, the nation's first power plant, began operating in New York City.

Records set by the Blackout of 2003, the biggest blackout in North America:

• Affected 50 million people in the U.S. and Canada
• Eight states and two Canadian provinces experienced power failures
• Three deaths attributed to the blackout
• 22 U.S. and Canadian nuclear power plants shut down
• 10 major airports shut down
• 700 flights canceled nationwide
• 7,600 gallons of drinking water distributed by the National Guard in Cleveland after the city's four main pumping stations failed
• 350,000 people on the New York City subway when the power went out, including 19 trains in underwater tunnels

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How Does An Electric System Work?

Electric systems are designed to supply customers with safe, reliable and affordable energy. But doing that requires a number of complex processes and systems. Of course not all systems are designed exactly alike because each community has its own special needs, as well as its own special geography. However, the basic components are the same:

1. Power plant - Electricity starts here, produced by spinning generators that are driven by water, a diesel engine, or a natural gas or steam turbine. Steam is made by burning coal, oil or natural gas or by a nuclear reactor. When needed, extra power is brought into an electric system from plants outside the area.
2. Power grid - Electricity is carried over a network, or "grid," that connects power plants to a substation and from there to distribution lines that take the power to homes or businesses.
3. Transmission substation - These facilities look like giant erector sets connected to wires from the power plant. Here large transformers increase voltage from thousands to hundreds of thousands of volts so the power can be sent over long distances.
4. Distribution Substation - You see them around towns and cities. They are those small fenced-in areas that have electric lines coming in and going out. Inside these fenced-in areas are transformers that reduce voltage to a lower level so the power can be sent out on distribution lines to the surrounding community.
5. Distribution system - Includes main or primary lines and lowervoltage or secondary lines that deliver electricity through overhead or underground wires to homes and businesses. You see these lines every day on poles alongside roads and streets.
6. Service connection - That's the line that connects to the meter on the side of homes and businesses. The meter is used to determine how many kilowatt-hours are used by each customer.

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How Does A Gas System Work?

Natural gas systems are relatively simple in concept. What's complicated is designing them to be as safe and secure as possible for use as an energy source in homes and businesses. The simple concept is: You take the gas out of the ground and use pipelines to get it to customers.

1. Wellhead - Natural gas is flushed out of the ground. The pressure of the gas where it exists underground pushes it to the surface after the well is drilled.
2. Treatment facility - Once out of the well, the gas is treated to remove any sand, dust, contaminants, water or condensed petroleum liquids.
3. Storage facility - Natural gas is compressed and injected into underground storage facilities (like depleted salt caverns or old gas fields) between April and October when demand is low. In colder weather months, the gas is brought back into the distribution system as needed. Purists in the business like to say it's "drawn out."
4. Compressor station - Increases gas pressure to keep it moving through a network of underground pipelines.
5. High-pressure pipelines - Transport gas to distribution systems, often across long distances. The pipelines can range up to 48 inches in diameter.
6. Regulator station - Reduces the pressure of the gas as it enters the distribution system and injects an odorant into the gas so it can be smelled in the event of a leak. Natural gas otherwise is odorless.
7. Distribution system - Takes the gas from the regulator station to cities, towns and communities.
8. Individual pipe and meter connection - Connects homes and businesses to the distribution system. A gas meter measures the amount of gas consumed by the customer.
9. Safety valves - Used to shut off gas to specific areas during construction and emergencies.

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How Do Utilities Work?

Generally speaking, there are two views on how utilities work, and one doesn't sound anything like the other. To people outside the business, a utility seems like it's an easy, sure way to make money. All you need is a power plant, or some natural gas pipelines, a couple of electric transmission and distribution lines, and you're in business. No need to constantly update your product line with the latest technology or snazzy ad campaign. Electrons are electrons. Natural gas is natural gas. Customers don't see'em, hear'em or taste'em. And best of all, you have no competition. To most people, utilities own the marketplace because they are a monopoly. Only Santa Claus has a better deal - and that's only because he works just one day a year!'

But from inside the utility industry, the view is quite different. It starts to get more complicated the day you decide to supply a community with energy (electricity or natural gas). For example, let's say you decided to supply Santa Claus' hometown, the North Pole, with electricity. Now just because you decided to do business with the North Pole, doesn't mean you're home free. Before you can hook up your first customer, you need to get a franchise agreement. A franchise agreement? "Wait a minute," you say. "This isn't McDonald's or Krispy Kreme. This is a utility business. We supply a vital community service, and we do it well. Why do we need a franchise agreement?"

The long legal answer to this question would fill the rest of the pages of this booklet. The short answer is that you need a franchise agreement so that you have the community's official permission to construct or maintain your distribution system within the community. The franchise agreement is eventually enacted as a city ordinance. In other words, the utility franchise is required by state law so that community leaders and everyone else in the community generally know what you are going to do for them, how you are going to do it and, of course, that you will fix the sidewalks and streets you dig up to put in your power lines or natural gas pipelines.

Throughout its operating territory, Black Hills Energy has nearly 1,000 such franchise agreements. That may seem like a large number, but roughly 83 percent of the company's customers live in rural communities of 1,000 or fewer people.

In addition to the utility franchise, you may have to pay the community a "franchise fee," which in turn you are allowed to include on your customers' bill. Not all communities enact an additional franchise fee ordinance.

Franchise agreements are not meant to cover everything associated with operating a utility. Items like rates, service obligations, metering, cold weather rules, complaint procedures and customer service rules are covered by federal and state laws, rules and regulation. You could fill an encyclopedia with all that information. (For a primer on how rates are set, and its associated lingo, see pages 39-43.)

Okay, so you now have your franchise agreement with the North Pole. Clear sailing from here on. Wrong! Franchise agreements don't last forever. You have to renew them. Some communities want you to ask for a renewal every few years. Some every five years. Some every 20 years. On average, each year Black Hills Energy must renew between 25 and 50 franchise agreements. What is more, there's no guarantee that a community will renew your franchise agreement. As communities grow and leadership changes, some communities may decide to operate the distribution system (that's the pipe and wires that connect to the customer's home or business) as a municipally-owned system. Or, maybe the community now wants to deal with a local cooperative system (that's where the customers own the operating entity). All these and other issues, such as possible service upgrades to help the community grow and facility relocations become part of negotiations for a new franchise agreement.

Of course, there's some special lingo associated with franchising. Here are a few of the most commonly used terms:

Franchise Agreement or Franchise Ordinance

A legal agreement, which becomes a city law, between the community and the utility that explains in detail how the utility will operate within the community. The purpose of such an agreement is to grant permission to the utility to locate its property inside the city limits of the community, minimize misunderstandings of the community's governing requirements, and to provide guidance as how duties will or will not be performed by the utility.

Franchise Record

One of the factors financial rating companies and prospective investors consider when the company prepares to obtain long-term financing. These financial institutions prefer long-term franchise agreements and close to 100-percent renewals. A good franchise record contributes to a better credit rating, which results in lower interest rates and thereby lower rates for customers.

Exclusive vs. Non-Exclusive Franchise Agreements

In almost all states only one electric utility is permitted to serve a community because of the expense of building and maintaining electric distribution systems. Those franchises are "exclusive." The same fact is not true for natural gas. While most communities only have one natural gas utility, state law generally permits communities to have multiple natural gas franchises. Those natural gas franchises are "non-exclusive." Competition of natural gas distribution facilities does occur from time to time in some of the communities served by Black Hills Energy.

Hold Harmless or Indemnity Clause

Part of a franchise agreement that protects the community from liability for injury or damages related to negligence by the utility during construction, operation or maintenance of its facilities.

Public Right-of-Way Use

Allows the utility to use the community's streets, alleys, avenues and other public places for its facilities. Sometimes the utility will also need to enter into private (easement) agreements with property owners for use of their property. Private easement or private right-of-way agreements would not be part of the utility franchise agreement.

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Federal Energy Deregulation Laws

Just in case you're wondering how the federal government is influencing the utility industry, here's a list of key legislation passed by Congress and orders by the Federal Energy Regulatory Commission (FERC):

• 1935 - Public Utility Holding Company Act (PUHCA): Restricts ownership of an electric business by a non-utility company.
• 1978 - Natural Gas Policy Act: First step toward deregulation of natural gas prices.
• 1978 - Public Utility Regulatory Act: Beginning of competition for generation of electricity. Requires utilities to provide open access to transmission lines for use by independent power generators.
• 1985-1992 - Open Gas Access (FERC Orders 436 through 636): Direct access, disaggregation of integrated natural gas industry, and unbundling of products at the wholesale level.
• 1989 - Wellhead Decontrol Act: By 1993, had effected the end of all price controls on first sales of gas.
• 1992 - Energy Policy Act: Set the stage for competition in wholesale electricity generation.
• 1996 - Electricity Open Access (FERC Orders 888 and 889): Order 888 opened up wholesale power sales to competition; Order 889 addressed transmission system fairness to all competitors as pertains to wholesale power transactions and created the OASIS system (see definition) in use today.

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The Lingo Of Utilities

Access Charge

In 1996, the Federal Energy Regulatory Commission (FERC) published rules to establish open access to electric transmission lines as a major step toward electricity deregulation. A provision of those rules established open access tariffs that would permit companies to recover part of the "stranded" costs represented by investments in their transmission lines and supporting equipment. At the same time, the rules were designed to assure that companies could not exercise and unfair competitive advantage by charging competing generators or resellers exorbitant rates for access to their lines.

Actual's

The actual commodities or physical cash commodities, as opposed to futures contracts or derivatives. Also called spot commodities or cash commodities. Utilities trade these commodities daily as a way to make sure the right amount of power gets to the right place at the right time.

Adequate Regulating Margin

The minimum on-line capacity of a system that can be adjusted instantly to handle changes in electricity use.

Affiliated Power Marketing Companies

Power marketers that are more than 5 to 10 percent owned by an electric utility or independent power producer. Many companies had such affiliates prior to the collapse of Enron. Since then, many companies, including Black Hills Energy, have shut down their affiliated power marketing companies.

Affiliate Transactions

Selling and trading between companies, one of which owns a controlling or influential share of the other(s) or all of which are being controlled by the same parent company.

Alternating Current (AC)

Electric current that reverses direction at regularly recurring intervals of time (such as 50 cycles per second), known as the frequency. AC can easily be converted to higher or lower voltages. (See also Direct Current.) In the United States the standard is 60 cycles.

Ampere (amp)

A unit of measure that tells how much electricity flows through a conductor. Amps = watts divided by volts. On a 120-volt system, a dozen 100-watt bulbs draw 10 amps of electric current.

Ancillary Services

Also known as Interconnected Operations Services, these are the services necessary for the transfer of electricity between purchasing and selling parties. The FERC requires a transmission provider to include these services (balancing, for example) as part of its open access transmission tariff. In other words, this makes the grid work nicely so your lights don't flicker all night long.

Available Margin

The difference between the demand for electricity and the electricity a utility has available. Expressed as a percent, it's the capacity available to cover demand in the face of random events, such as forced outages, demand forecast errors, weather extremes and slippage in capacity service schedules. Also known as Capacity Margin.

Available Transfer Capability (ATC)

A measure of physical transmission network available for further commercial activity.

Avoided Cost

Money a utility saves by purchasing power from another company instead of producing the power itself. Avoided costs include such things as reduced capacity requirements or fuel and lower line costs.

Barrel

A single-passenger vehicle used by a few enterprising individuals to navigate Niagara Falls. Also, a unit of measure for petroleum products, equal to 42 gallons.

Base Load

The minimum amount of electric power delivered or required over a given period, at a constant rate.

Base Load Plant

A power plant built for the specific purpose of providing power to a utility's customers. Engineers explain it this way because they want to be precise: A plant operated to take all or part of the minimum continuous load of a system and which produces electricity at an essentially constant rate. These plants are operated to maximize system mechanical and thermal efficiency and minimize operating costs. For accounting-types only: These plants typically have high fixed costs and low unit operating costs.

Best Efforts Service

A service level offered to customers that includes the possibility that service might be interrupted on short notice, particularly during peak load periods. Peak load occurs when a whole lot of people turn on their air conditioners at the same time.

Billing Demand

A charge a customer pays to reserve capacity or facilities used, regardless of the customer's actual consumption. Billing demand may vary from actual demand during a given billing period since it can be based on a contract maximum, minimum or previous peak demand. It is also known as Ratchet or Ratcheted Demand Charge. That's a long-winded way of saying you pay for what you think you might need. Some companies buy their power this way because they want things to run just right.

Backstart Capability

The ability of a generating unit to start without assistance from an outside electric system. It's like jump-starting your car without hooking the jumper cables to another car.

Blanket Certificate (Authority)

A general authority, exercised under FERC rules, to purchase, transport or sell natural gas or electricity. A blanket certificate relieves the seller or buyer from obtaining prior approval for a sale or purchase.

Book Cost

The value at which property or assets are carried on a company's books, without adjusting for depreciation, amortization or other items. Book value is the book cost minus depreciation. Because book value is designed to allow a company to recover the cost of the item, it may vary significantly from the actual market value, which is used to calculate the cost of replacing the asset at today's prices. As far as Utility Lingo Simplified goes, your book cost is zero! We're giving it to you free of charge because we want you to understand our business as thoroughly as possible.

Broadband over Power lines (BPL)

Technically it's the transmission of data along an electric company's existing wire network. It will also allow customers to use their home wiring to create a local network, thereby allowing various devices, such as personal computers, set-top boxes, consumer electronic devices, to communicate with one another. It will also make broadband available to small communities too remote for the service-for-pay telephone or cable companies.

Brownout

A reduction in the voltage of power supplied to customers. It results from insufficient supply of power to match demand. It's the first cousin to a blackout, which is what happens next if demand doesn't drop or more power isn't produced in time.

Bulk Power Transmission

The transport of a large amount of electricity at high voltages, usually from one utility to another, through high-voltage lines. These are usually rated at 100 kilovolts (kV) and above.

Bundling

Billing for a group of services, such as generation, transmission and distribution of electricity, in a single fee. Black Hills Energy customers, as well as most utility customers across the U.S., receive a "bundled" bill. In the olden days, bundling had to do with keeping warm under a blanket while you were driving your hot date around in a horse and buggy.

Burner Tip

The end user, or the point of consumption for natural gas, such as your house (which has burners in the gas stove, furnace and water heater).

Bypass

Direct sales by producers, pipelines or marketers to end-users, thus eliminating services and costs associated with utilities or local distribution companies (LDCs). This kind of bypass is not covered by Medicare.

Capacity Charge

(See Demand Charge)

Capacity Margin

Excess electric generating capacity, beyond planned peak system demand. It is reserved for emergencies and generally specified by NERC standards.

Capacity Release

A party that owns firm gas transportation rights beyond its own needs may sell or release those rights to another party. The transfer of this capacity may be permanent or temporary.

Captive Customer

A customer, generally a residential or small business customer, who can purchase natural gas or electricity from only one supplier.

City Gate

The point where ownership of natural gas transfers from one party to another, neither of which is the end user. It also is the place where pipelines sell and deliver natural gas to the local distribution utility company.

City Gate Rate

The rate a supplier charges a local distribution company/utility. It is the cost of the natural gas where the distribution company takes ownership of it.

Cofiring

Burning natural gas along with another fuel to help reduce sulfur dioxide and nitrogen oxide emissions of the other fuel.

Cogeneration

Using heat (steam) that is produced by a natural gas-fired power plant to produce even more electricity or heating. In essence, cogeneration produces energy (electricity or heat) from two sources. While electric production may be somewhat less, more energy from the fuel reaches users (as steam or electricity) than is the case with a boiler or turbine designed to produce only electricity.

Combined Cycle

A process in a power plant that produces steam from otherwise lost heat. This heat is routed to a conventional boiler or heat-recovery system generator for use by a steam turbine to produce additional electricity. Not to be confused with a bicycle built for two.

Combined Pumped-Storage Plant

A generating plant that uses a combination of stream-flow and pumped water to generate electricity.

Comparability of Service (Comparable Access)

Under FERC Order 636, all natural gas pipeline customers are assured equal access to transportation, storage, flexible delivery points and other services, regardless of whether they purchase natural gas from an interstate pipeline or an independent supplier.

Confirmed Nominations

Verification by the pipeline that a change in a customer's level of transportation service will be matched by a change in supplier quantities.

Conservation

Reducing the amount of energy consumed by a customer for a specific end-use. Behavior changes, such as thermostat setback, are included in this definition. This definition does not include changing the timing of energy use, switching to other fuel sources or increasing off-peak usage, even though these actions may make more efficient use of generation or distribution facilities.

Contingency Reserve

Operating reserve that allows a generating facility to reduce control area error to zero within 10 minutes after the loss of generating capacity. A control area is a utility's service territory, as in Southern Colorado, for example. Error, in this case, means there's no more juice in the lines.

Continuous Rating

The amount of electricity that a system, facility, or element can support or withstand indefinitely without "burning up." For example, if you put too much electricity into your coffee pot, it will burn up, as in stop working. It also could catch on fire. (See also Emergency Rating.)

Contract Demand

The maximum amount of service that a party agrees to furnish over a given time (daily, monthly or annually) and for which a buyer agrees to pay a set charge. In other words, you get what you pay for.

Control Area

Generally, a utility's service area.

Core Market

A group of customers who have no choice but to buy electricity, or natural gas, or both, from a local supplier. Also called Regulated Market because prices are set by regulators, not by competition.

Cross-Subsidization

The practice of charging higher rates to one class of customer in order to lower the rates for another class. Also, transferring assets or services from a regulated business to the business of a company's unregulated affiliate. As used most commonly in the media, a cross-subsidy means the ratepayers are paying for a non-regulated activity, a no-no from a regulator's viewpoint.

Curtailability

In a curtailable interruptible electric service program, the customer agrees to pledge a minimum amount of electricity that can be curtailed (interrupted or withheld) by the utility during emergencies, generally in exchange for a lower rate, known as an interruptible rate. Natural gas deliveries may also be curtailed under similar arrangements, during periods of supply shortage or when demand for service exceeds pipeline capacity.

Decommissioning Sinking Fund

Money set aside to fund the permanent shutdown of a nuclear power plant.

Decontracting

Substantially reducing commitment by local distribution companies for firm space on pipelines when transportation contracts expire.

Deliverability

The volume of gas that a well, pipeline or distribution system can deliver during a given period, usually 24 hours.

Demand Charge (also called Capacity Charge)

A charge designed to recover costs associated with a given level of electric demand. It is paid even if no service is taken by the customer. The demand charge generally includes all costs associated with operating and maintaining a utility's generation, transmission and distribution systems.

Demand-Side Management

Any effort aimed at getting customers to use less electricity during peak demand periods, like during and after dinner. It includes conservation efforts like high-efficiency lighting, home insulation and lighting design, and incentives for replacing inefficient heating and cooling systems. Load control may include incentives to use less electricity as well as enabling the utility to turn a customer's heating and cooling units off or on by remote control.

Derating

Running a generator below the manufacturer's rating, which could damage or destroy the unit. For example, if the rating is 10 revolutions per minute and you run it at 5, it will (1) get hot and (2) stop running.

Deregulation

Since everyone has their own favorite way of explaining this one, let's go with what Webster has to say: To halt or reduce government regulations.

Design Day

A 24-hour period used as a basis for determining capacity requirements. It assumes a mean temperature, known as the Design Day Temperature.

Direct Current (DC)

Electric current that flows in one direction, remaining as close to constant "magnitude," or a certain flow, as possible (see also Alternating Current).

Disco

Short for distribution company; refers to a vertically disaggregated utility company (with distribution separated from generation and transmission), or one that has never owned power businesses other than retail distribution. (If you don't like that one, try this: An exercise facility focusing on the juncture of the sacrum and the ilium through the encouragement of sometimes rapid, highly torqued movements.)

Dispatching

Assigning generation and transmission of electricity through a system to assure coordinated operation. Also, sequencing the order in which generating resources are called upon to generate power to serve fluctuating loads at the most effective cost.

Distributed Generation

Any technology that provides electricity closer to an end-user's site, like a home or business. It may involve a small on-site generating plant or fuel cell technology. It's a hot topic today because improving technology is enabling manufacturers to make generators that are about the size of a refrigerator, or smaller. Like personal computers, these units are getting cheaper.

Distribution

The systems that ultimately bring energy to the end-user. Electric distribution refers to the system of power lines, transformers and switches. Natural gas distribution systems include the mains, service connections and equipment used to transport or control the supply of natural gas from the city gate to the customer. (This is similar to the "last mile" referred to in the fiber optic and broadband communication business.)

EEI

The Edison Electric Institute, a Washington, D.C.-based national trade organization of investor-owned electric companies that provides industry information and monitors regulatory changes and political developments.

EIA

The Energy Information Administration, an agency of the U.S. Department of Energy that collects and analyzes statistical information. It provides a wealth of information at www.eia.doe.gov. It also gathers required information from industry participants.

Electric System Losses

The total energy losses in an electric system between supply sources and delivery points. Loss occurs in transmission and distribution, primarily in the form of heat.

Embedded Costs

The cost of all the facilities in an electric or natural gas supply system. Also called sunken costs, because the money cannot be recovered by abandoning the project.

Emergency Rating

The rating, defined by the equipment owner, that specifies the level of electrical loading that a system, facility or element can support or withstand for a finite period. It assumes acceptable loss of equipment life or other physical or safety limitations for the equipment involved.

Emergency Voltage Limits

The operating voltage range on interconnected systems that is acceptable for a limited time while system adjustments are being made following a facility outage or system disturbance.

Enabling Agreement

The agreement that details the general terms and conditions for the purchase or sale of electricity, but that does not include the specific details or obligations of either the seller or the buyer.

End User

That's you: a homeowner, business, plant or other type of consumer of electricity or natural gas.

Equilibrium Price

The price that prevails in a particular market when supply and demand are equal. That's really different from market clearing price, which is the price at the end of the day when the market closes.

Equity Financing

Raising money by issuing shares of stock.

Exempt Wholesale Generators (EWGs)

Independent power plants that generate electricity for sale on a wholesale basis vs. a more exempt generator that generates electricity for assigned or "regulated" customers. EWGs can be owned by utilities, utility holding companies, or developers not affiliated with an electric utility. The Federal Energy Regulatory Commission (FERC) determines EWG status and "exempts" the facility from restrictions imposed by the Public Utility Holding Company Act (PUHCA).

Exit Fee

The fee charged a customer to leave a utility system. It is intended to compensate the utility for its stranded, or fixed, costs related to supporting that customer.

Federal Energy Regulatory Commission (FERC)

The federal regulatory agency within the Department of Energy that oversees interstate electricity sales, electric rates, hydroelectric licensing, natural gas transmission, gas and oil pipeline rates, and investor-owned utility transmission.

Federal Power Act

Legislation, enacted in 1920 and amended in 1935, that governs the FERC.

Federal Power Commission (FPC)

The federal agency that preceded the FERC.

Firm Customer

A customer considered a high priority end-user, such as a residential customer, for whom contract demand is reserved and to whom the supplier is obligated to provide service. The customer receives Firm Service, service that anticipates no interruption, except for "force majeure" (causes beyond the control of the supplier, such as extreme acts of Nature).

Fixed Price

A price that is agreed upon by two parties and cannot change, regardless of subsequent fluctuations in market price.

Floor

A guaranteed minimum price that a seller will pay in a supply contract. Also, the space directly opposite the ceiling.

Flue Gas Desulfurization Unit (Scrubber)

Equipment used to remove sulfur oxides from a power plant's combustion gases before they are discharged into the atmosphere.

Forced Outage

The unplanned shutdown of a generating unit, transmission line or other facility. Meaning, "the lights just went out."

Forced Outage Reserves

The capacity needed to meet peak load during forced outages.

Forecast Uncertainty

The probable deviations from the expected values of factors considered in a forecast for energy demand or supply. Meaning, "I'm not sure."

Fractionation

The process of separating liquid hydrocarbons removed from natural gas into propane, butane, ethane and the like. Fractionation can also refer to separating various petroleum liquids from crude oil.

Frequency

The rate at which alternating current oscillates, expressed in cycles per second, or Hertz (Hz). The standard for alternating current is 60 Hz in the United States, and 50 Hz in Europe.

FT

Firm transportation; capacity contracted for a natural gas or power transmission system that cannot be cancelled by the operator of the system. That means you bought it, so use it.

Fuel Cell

A device that generates direct current electricity from a chemical reaction. This rapidly developing technology promises radical advances in powering everything from automobiles to small buildings, and maybe even homes.

Functional Unbundling

Pricing each aspect of a service separately, such as the generation, transmission and distribution of electricity, or the production, transportation and storage of natural gas. Similar to what computer companies do; they sell you the computer and then you need to buy the software to make it do all the exciting stuff you see in advertisements.

Gas

One of the three forms of matter, the others being solid and liquid:

• Casinghead gas is unprocessed natural gas that is produced from a reservoir containing oil.
• Cushion gas is the natural gas required in a gas storage reservoir to maintain enough pressure to permit recovery of stored gas.
• Dry gas is natural gas that contains few or no hydrocarbons that can be recovered as a liquid product. Also, gas in which the water content has been reduced.
• Liquefied natural gas (LNG) is gas that has been super-cooled under pressure and remains a liquid at minus 116 degrees Fahrenheit and 673 psi. Not to be confused with liquid or liquefied petroleum gases (LPGs), which are hydrocarbons such as propane or butane that are gases at normal temperatures and pressures, but liquids under moderate pressure at normal temperature.
• Must-take gas is natural gas that is committed to a purchaser who is obligated to take it. As in, "It's yours, even if you don't need it."
• Non-associated gas is gas that is not in contact with or dissolved in crude oil in a reservoir. Unofficially, that means it's all alone.
• Shut-in gas is intentionally not being produced because of state conservation orders, unfavorable economics, or the failure of committed buyers to take it.
• Sour gas is natural gas that contains sulfur compounds that must be removed because of their corrosive effect on piping and equipment.
• Sweet gas is the opposite of sour gas; it does not need to be purified before it can be transported or used.
• Synthetic natural gas (SNG) is methane derived from sources other than naturally occurring reservoirs. It might be extracted by heating coal, refining heavier hydrocarbons, or processing organic materials such as garbage.

Gas Inventory Charge (GIC)

A charge paid by a buyer to the supplier for holding natural gas supplies that'll be delivered later.

Gathering System

The pipelines and other equipment used to collect, process and deliver natural gas from the producing field to the trunk or main transmission lines of a pipeline system.

Genco

Short for generating company; the generating portion of a disaggregated utility's operations. Said another way, it's a company that owns just generators, and no transmission or distribution systems.

Greenhouse Effect

The warming of the atmosphere caused by the buildup of "greenhouse" gases, which allow sunlight to heat the earth while absorbing the infrared radiation returning to space, preventing the heat from escaping. Gases contributing to the greenhouse effect include carbon dioxide, methane, chlorofluorocarbons, ozone and water vapor (which you see as steam).

Green Power

Electricity produced using wind, sun, or steam escaping from the earth. By definition, federal regulation also includes power generated by such sources as gas produced by decaying garbage. Also includes energy produced by biomass, hydro and geothermal.

Grid

The network of high-voltage transmission lines through which power moves. In the United States, there are three distinct electric power grids: the Eastern Interconnection, the Texas (or ERCOT) Interconnection and the Western Interconnection. The grid has big, fat power lines that have a tendency to hum.

Gross Available Capacity (GAC)

The capacity at which a unit can operate with a reduction imposed by a derating (see definition). Translation: the power you have available to sell.

Gross Dependable Capacity (GDC)

The gross maximum capacity (GMC), modified for seasonal limitation over a specific period.

Gross Maximum Capacity (GMC)

The maximum capacity of a unit sustainable over a period of time, unmodified by seasonal or other deratings.

Header

A natural gas facility where several pipeline systems interconnect.

Heat (or Heating) Rate

The measure of efficiency of converting fuel to electricity, expressed as Btu's of fuel per kilowatt-hour. The lower the heat rate, the more efficient the plant.

Hourly Peak

The peak demand for energy from a transmission or distribution system during a one-hour period.

HVAC

Heating, ventilation and air conditioning. Or tech-talk for keeping you warm and cool.

Imbalance (electric)

The condition that occurs when generation and interchange schedules do not match demand. An imbalance could lead to a "brownout." A prolonged imbalance could lead to a "blackout."

Imbalance (gas)

The condition that occurs when there is a discrepancy between a transporter's receipts and its deliveries of natural gas for a shipper.

Imbalance Penalties

Penalties imposed by a pipeline when a shipper fails to maintain a specified percentage balance between receipts and deliveries. This applies to the natural gas business only.

Independent Power Marketer

A company, other than a utility, that sells wholesale electricity. That is, they sell to just about anyone except homeowners. With the advent of electricity deregulation, independent power marketers proliferated and were becoming an important market force. Now their futures are in question, in part because after the fall of Enron and the highly publicized energy problems in California, many people wonder if there is a future for deregulation in the energy business.

Independent Power Producer (IPP)

A producer of electricity not affiliated with the local utility company selling the power. Also see Exempt Wholesale Generator (EWG).

Independent Producer

In the natural gas industry, a company engaged in just the production or gathering of natural gas.

Independent System Operator (ISO)

An entity that controls and administers access to electric transmission in a region or state or across several systems, on a non-discriminatory basis (that means one guy doesn't get a better deal than the others) for a number of independent utilities. Under FERC Order 2000 an ISO, after complying, can become an RTO (Regional Transmission Organization).

Input/Output Test

A test of generating units used to determine their efficiency (heat rate) at various loads and operating outputs.

Instantaneous Demand

The rate of energy used right now.

Instantaneous Service

The ability to change delivery of natural gas on a pipeline on the same day you ask for it.

Interchange (or Transfer)

The net exchange of power across or between control areas. In some ways it resembles an interchange where several highways crisscross each other.

Interchange Energy Agreement

An arrangement that assures all par-ties an equal ability to serve their firm loads. (Remember, a firm load is what you really need to meet customer demand.) Parties unable to meet their loads in a given month may request interchange energy from someone else who has extra. (They buy it at a previously set price, so there is no rip-off here.)

Interconnected System

Two or more power systems with connecting tie lines that are normally synchronized (like on the same beat, man) in their operation, so that in many ways they operate as a single entity.

Interconnection

When capitalized, the word refers to one of four synchronized bulk electric system networks in the North American Electric Reliability Council: the Eastern, Western, ERCOT and Quebec. When it is lowercase, it refers to facilities that connect two or more systems or control areas.

Intermediate Load

The range between base load (see definition) and peak load.

Interruptible Demand

It's a way to get natural gas or power at less than a premium rate. The deal is, when there's a short supply of either, like on those long, hot summer days when everyone's air conditioner is set on super-cool, you're going to have to shut something off because you're about to get less power, or no power at all. Customers signing up for interruptible demand pricing deals are generally industrial or commercial firms. In an energy shortage, their workers might be sent home early because the plant is being shut down.

Interruptible Service

Gas service that can be interrupted at the option of the pipeline operator. Also referred to as "best efforts" service, the tariff for interruptible service is lower than for firm service.

Inverted Block Rate (Graduated Rate)

A rate structure by which successive blocks of power are priced at increasingly higher rates.

IOU

Short-form for an "investor-owned utility," i.e., a utility that has stockholders.

Joint Use (or Common Use) Facility

A facility jointly used by two or more power generating units.

Just and Reasonable Rate

A rate set at the lowest reasonable level that recovers a pipeline's costs, according to the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978 (see table on page 10). It generally means a rate based on the properly allocated cost of providing service. State regulators use this in rate setting.

Lambda

The measure of the rate at which fuel is consumed relative to electric output, expressed in Btu's per kWh. It is often referred to as the incremental cost of power. Also, the eleventh letter of the Greek alphabet.

LDC

A local distribution company, which is a utility that obtains the major part of its income from a retail distribution system for the delivery of natural gas or electricity to end-users. Said plainly, it's the company that supplies your home with electricity or natural gas in exchange for your hard-earned cash.

Lifeline Rates

A rate for a block of electricity sufficient for basic use of residential customers. Usage beyond that block is priced at a higher rate.

Load Curve

A graphic representation showing power supplied, plotted against time, to illustrate the varying magnitude of the electric load during the period covered. Power company employees check the graphs to make sure everything is okay.

Load Duration Curve

Used to show the period of time that electric load was above a certain magnitude. These curves profile system demand and can be drawn on a daily, monthly or yearly basis.

Load Factor

In electric systems, the ratio of average output to peak output during a specific period of time, expressed as a percent. In gas, the ratio of the amount of gas a customer takes, compared to the maximum amount the customer is entitled to take. The load factor capability is a measure of the degree to which physical facilities are being utilized. It's one indicator of efficiency.

Load Following

An electric system's ability to regulate generation in response to instantaneous changes in demand. It's something like closely following the car in front of you without hitting it.

Load Management

Shifting of electric load patterns to use a system's facilities more efficiently. Load management generally tries to shift usage from peak times to off-peak periods of a day or year. This is different from conservation measures, which attempt to reduce total usage for a given period of time.

Load Shape

The pattern of the magnitude of power load over a given period of time. Imagine it as a line that goes up and down as it crosses a sheet of paper.

Load Shedding

Deliberately removing pre-selected demand from a power system to keep the system working and minimize outages during periods of abnormal conditions. Also, the highway phenomenon that results in all those stray mattresses and sofa cushions along the side of the road.

Load Shifting

See Load Management.

Loss of Load Probability

A measure of the expectation that system demand will exceed system capacity during a given period; usually expressed as a number of days per year or longer period.

Loss Supply

Supplemental power provided by another utility, called a wheeling utility, to compensate for losses incurred during transmission.

Main

A distribution line for natural gas or electricity that serves as a common source of supply for more than one service line.

Marginal Cost

Incremental or differential cost. For electric utilities, it is the cost of providing the next, or marginal, kilowatt-hour of electricity, irrespective of fixed costs.

Marketer

A company that specializes in bringing together sellers and buyers of energy, usually on a spot-market basis. A marketer negotiates price and arranges transportation and delivery.

Marketing Affiliate

A gas or electricity marketing company owned or substantially controlled by a gas pipeline or distributor or by an electric utility.

Minimum Generation

The lowest level to run a generator so you can meet peak power needs.

Monopsony

The opposite of monopoly. A monopsony is a market in which there is only one buyer for multiple sellers. Gas pipelines typically had a monopsony relationship with producers and a monopoly relationship with downstream customers. The creation of a national grid system with open access policies results in competitive relationships that are sensitive to price.

Muni-Lite

A municipal utility that does not own generation or significant transmission or distribution facilities. It owns only home and business meters and purchases power from a wholesale market for resale to homeowners and businesses.

Must-Run Units

A generating unit that must be online or on the grid to ensure the stability of the system, even if it costs more to run than other units that may be available on the system or in the power pool.

Native Load

The total requirements of a utility's retail market.

Net Actual Generation

The actual electrical energy a unit generates during a given period, less any generation used by the unit itself or it by its auxiliaries. Also known as the net generating station capability. The amount is not a constant; it can vary depending on the season and other factors.

Net-Back Pricing

A method of pricing natural gas at the wellhead, based on what it sells for at the burner tip (i.e., where you use the gas, such as your stove or furnace).

Net Capacity

The maximum capacity a power plant can sustain over a period of time, less the capacity used to supply its own needs for things such as motors and other equipment essential to its operation. This capacity may be modified to account for seasonal or ambient limitations. If you're a boat captain, refers to how many tuna you can haul in at any given moment.

Net Generating Station Capability

The total capacity of a generating facility to produce power, less the amount it needs for its own uses.

No-Bump Rule

A rule that protects a natural gas shipper from losing pipeline capacity because of an increase in volumes by another shipper with a higher priority in the interruptible queue.

Nominal Voltage Rating

Voltage standards set by U.S. electrical equipment manufacturers and electric utilities to ensure that equipment is designed for the voltage range encountered in actual use.

Nomination

A request for service under a service agreement. Also, a natural gas shipper's offer to move gas on a pipeline during a given period. Nominations may be made on a daily, mid-day or hourly basis. Even after reading this it's quite understandable why the word makes more sense in the political arena.

Non-Coincident Demand (NCD)

A customer's maximum electric demand during a given period. Sometimes called a customer's monthly Non-Coincident Peak Load.

Non-Depletable Energy Sources

Energy obtained from sources such as the sun or falling water that are not depleted by use.

Non-Firm Energy

Electricity that is not required to be delivered or taken under the terms of an electric purchase contract. In other words, it's extra.

No-Notice Service

A service under which a customer may receive additional natural gas on demand, regardless of prior nominations, without paying penalties. "Oh, you want it? You can have it."

Non-Spinning Reserve

Generating units that are not connected to a system, but that may be placed online when needed.

Non-Utility Generator (NUG)

A generator not owned by a utility. A NUG may be a qualifying facility, an independent power producer or an exempt wholesale generator. (See those definitions.)

North American Electric Reliability Council (NERC)

A power industry alliance formed in 1968 as a result of the massive 1967 New York City blackout. Its purpose is to make sure that kind of event doesn't recur. NERC is composed of 10 regional councils and includes virtually all the power regions of the contiguous United States, Canada, and part of the Mexican state of Baja.

The Nuclear Regulatory Commission (NRC)

A federal agency that licenses and regulates U.S. nuclear power plants.

Open Access Same-Time Information System (OASIS)

The FERC-sanctioned electronic information system for electronic transmission capacity availability. OASIS replaces the Real-Time Information Networks System (RINS). Each public utility that owns, controls or operates facilities used for the transmission of electric energy in interstate commerce must participate in an OASIS. It provides existing or potential open access transmission customers with information about available transmission capacity, prices, and other information essential for obtaining non-discriminatory open access transmission service. Think of it this way: If you own a transmission line, this is how you tell your customers when you have available transmission capacity to sell. It's the power company's version of Ebay.

Off-Peak

A period of lower energy demand.

Ohm

A unit of electrical resistance. One volt can produce a current of one ampere through a resistance of one ohm. (Sing it well enough and you might qualify to become a Tibetan monk.)

Open Access

Access on a non-discriminatory basis to the transportation or transmission services of a pipeline or electric utility. That means you can use it.

Operable Nuclear Unit

A nuclear generating unit certified for full-power operation by the NRC, following successful completion of its low-power tests.

Passive Solar Energy

Using the sun to help meet energy needs through architectural design, such as the orientation of a building, arrangement of windows and choice of materials to conserve heat in winter and dissipate it in summer.

Peak Demand

The maximum electric load, including losses experienced by a system, in a given period. It is the actual demand by all system customers plus losses.

Peak Load Plant, or Peaker Unit

A power plant used during maximum load periods. A peaker generally has quick start up time per megawatt energy costs, but often has low capital cots. Generally, it's used only during peak demand periods like a long hot summer.

Peak Shaving

Reduction of peak demand for natural gas or electricity.

Peaking Supply

A supply of natural gas available to meet peak demand.

Peaking Supply Service

A service that allows a customer to obtain a given quantity of natural gas at the buyer's request during peak periods.

Performance-Based Rates (or Regulation)

An alternative to cost-of-service rates (or regulation). In this method, rates are adjusted to reflect a utility's practice of exceeding targets for efficiency, cost-savings or customer satisfaction. Essentially, the utility and its customers share the rewards of excellent performance. For example, if the utility meets improved efficiency targets, the customers can enjoy lower rates and the utility is allowed to keep some of the savings.

Photovoltaic Conversion

Direct conversion of the sun's energy into electricity using photovoltaic cells.

Planned Derating

The planned reduction in a power plant's capacity to allow repairs or maintenance on system components.

Plant-Use Electricity, or Plant Auxiliary Load

The electric energy used to operate an electric generating facility.

Point of Delivery (POD)

The point where a power supplier delivers electricity. It could include an interconnection with another system or a substation.

Postage-Stamp Rate

A flat-rate charge for transportation of natural gas or transmission of power without regard to distance. Same way it costs 37 cents to send a letter, whether it's going to the next town or all the way across the country.

Power Broker

An individual or firm that arranges bulk power transactions. Power brokers bring together a seller and buyer, without taking title to the power. Power brokers, unlike power marketers, assume no risk. Utilities will sometimes go to a power broker to find the lowest priced power available, especially in the summertime when high temperatures and high cooling use increase the need for power.

Power Exchange (PX)

A place where power from various systems is scheduled. Also, on an Army post it is where you buy all your tax-free goods. Military personnel call it the "PX" short for Post Exchange.

Power Factor

That part of the power actually used by a customer's electrical equipment, expressed as a percentage of the total power supplied. Power factors only apply to AC circuits.

Power Marketing Administrations

One of five administrations established by Congress to sell hydroelectric power generated by federal dams and power plants. The TVA is a separate agency with similar functions.

Power Swipes

When one utility takes power off the grid without telling anyone it did it.

Preferred Day-Ahead Schedule

A scheduling coordinator's preferred schedule for day-ahead scheduling process. The schedule may also be done on an hour-ahead basis.

Preferred Schedule

The schedule produced by a scheduling coordinator, representing the preferred mix of generation to meet demand. Included in the schedule are the quantity of output (generators) and consumption (loads), details about any adjustment bids, and the location of each generator and load. The schedule details the quantities and location of trades among scheduling coordinators and is balanced with respect to generation, transmission losses, load and trades.

Provider of Last Resort

An entity, traditionally a utility, obligated by law to provide service to a customer whose business is not wanted by competing utilities.

Pumped-Storage Hydroelectric Plant

A plant that generates electricity during periods of high power demand by releasing water that had been pumped into a reservoir during periods of low demand. It is an efficient means of using low-demand energy to meet high demand needs, since pumped storage returns about two-thirds to three-fourths of the electricity put into it. Plants that use both pumped water and natural stream flow are called Combined Pumped-Storage Hydroelectric Plants.

Ratchet or Ratcheted Demand Charge

See Billing Demand.

Rate Base

The value of property on which a utility is allowed to earn a specified rate of return. There are many ways to calculate the rate base, including fair value, prudent investment, reproduction cost and original cost. It may also cover items such as working capital and prepayments, and can be adjusted for items such as depreciation, deferred taxes and accumulated deferred investment tax credits.

Rate Structure

The schedule of charges that an energy company or utility uses to bill customers for energy, including:

• Block Rate - A rate that prices various blocks of demand or consumption using different unit charges.
• Flat - A rate that does not vary with the quantity used or the contract demand.
• Lifeline - A residential rate for a specified block of energy that is priced below the allocated cost of service.
• Mileage-Based - A rate determined by the length of the haul.
• One-Part - A per-unit or commodity charge without components for reservation, demand, etc.
• Postage-Stamp - Transportation rate applicable to a given zone or area, as opposed to a mileage-based rate.
• Seasonal - A rate that changes with the season.
• Step - A tiered price structure that depends on the step within which the last consumed unit falls.
• Straight line - A constant per-unit charge that does not vary with an increase or decrease in the units used.
• Three-Part - A rate consisting of a customer charge, a demand charge and a commodity charge.
• Two-Part - A rate consisting of a demand charge and a commodity charge.
• Volumetric - A rate or charge based on the amount or volume actually received by the customer.
• Zone - A rate based on a zone through which the energy moves.

Real-Time Pricing

Pricing of electricity that reflects the actual time of day when the power is used. Customers with real-time pricing receive frequent signals throughout the day on the price of electricity at that moment.

Regional Transmission Organization (RTO)

FERC-mandated region-al organizations charged with managing the transmission of power in a region of the country.

Release

A party's ownership of firm gas transportation rights beyond its own.

Reliability

For an electric system, reliability means the ability to supply the electrical demand and energy requirements of its customers at all times, taking into account scheduled and unscheduled outages as well as the ability of the system to withstand sudden disturbances, such as electrical shorts or unanticipated loss of facilities.

Reliability Must-Run Generation

Generation that an independent service operator (ISO) determines is necessary to meet the system's reliability, satisfy demand in constrained areas, or provide voltage or security support for the ISO or a local area.

Reliability Must-Run Unit

A unit that an ISO can, with compensation, demand that an owner run when required for grid reliability.

Reserve

The generating capability that an electric utility needs, in addition to the highest level of user demand, to meet its needs.

Reserve Generating Capacity

The capacity of units kept available by an electric utility to meet special needs. This may occur when demand is unusually high, or when other units are offline for maintenance, repair or refueling.

Reserve Margin

The margin between a system's dependable capacity - including firm power purchases, but excluding maintenance or forced outages - and anticipated peak load. It is expressed as a percentage of peak demand.

Rolled-In Pricing

A pricing method in which rates are based on the weighted average of all costs for all customers or services, rather than on allocating specific costs to specific customers.

Rollover Clause

A clause in a natural gas contract that allows the contract to extend beyond its initial term.

Royalty

Money paid to the owners of mineral rights, typically based on a percentage of total production. Such owners may or may not bear a share of the expenses of production, according to the lease terms. Also how many high-paid actors and athletes think of themselves.

Run-of-River Plant

A hydroelectric plant that relies on the flow of a stream or river, with no capacity to store water.

Scrubber

See Flue Gas Desulfurization Unit.

Security Coordinator

The regional entity charged with ensuring the reliability of a power system by monitoring the operation of regional grids and coordinating the actions of control area operators during emergencies. A security coordinator is barred from participating in wholesale or retail merchant functions.

Scheduling Coordinator

Submits balanced schedules and provides settlement-ready meter data to the independent system operator. The scheduling coordinator also settles with generators and retailers, the PX and the ISO; maintains a year-round, 24-hour scheduling center; provides non-emergency operating instructions to generators and retailers, and transfer schedules in and out of the power exchange, or PX. The PX itself is considered a scheduling coordinator.

Service Voltage

The voltage at which a customer is connected to the electric system.

Shaping

The management of generating resources to meet variable demand. In a hydroelectric system, for instance, shaping may involve varying the release of water from a reservoir in order to maintain a balance between generation and demand.

Short-Run Avoided Cost (SRAC)

Costs that a utility avoids by taking power from a qualifying facility for a relatively short period, such as one month. A qualifying facility, as defined by the Public Utilities Regulatory Policy Act of 1978 (PURPA), is a small power producer or a cogenerator that sells its electricity to public utilities.

Small Power Producer (SPP)

Defined by PURPA as an entity that generates electricity using renewable resources, such as waste, wind, solar or geothermal energy for at least 75 percent of its total energy input. It's design capacity must be 80 megawatts or less.

Sour Gas

Natural gas that contains lethal hydrogen sulfide; it must be purified before it can be introduced into the interstate pipeline system. It smells sort of sour, thus the name.

Spill

The overflow structure of a dam; the release of water from a reservoir that does not pass through turbines to generate electricity.

Spinning Reserve

Unused but available capacity from generating units that are connected to and synchronized with a grid. It is nearly "instantly available" to meet additional demand.

Standby Demand

The amount of power available as a secondary source or backup for the outage of a customer's primary source, as specified by contractual arrangement. At the airport, this refers to the length of that line of especially anxious passengers who keep bugging the ticket agent every few minutes.

Substation

A facility that switches, steps down or regulates electricity. Substations also serve as control or transfer points in an electrical system. Their purpose is to route and control electricity, alter voltage levels and serve as delivery points.

Sweet Gas

Natural gas that does not need to be purified to remove sulfur-bearing compounds. In other words, the opposite of sour gas. This particular sweet and sour stuff has nothing to do with a Chinese restaurant.

Swing Supply

A supply of natural gas that is the last to be taken by a customer and the first to be curtailed if a shortage arises.

Take-or-Pay

A contract clause that requires a buyer to pay for a quantity of natural gas or electricity whether or not that amount is actually used. Typically in the past, take-or-pay clauses stipulated an absolute amount (usually of gas) or a percentage of the total contract amount that had to be taken over a period of time, usually a year. Take-or-pay clauses are rare today.

Tiered Rates

A system of rate schedules that divides customer usage into different tiers or blocks, each with a different price.

Time-of-Day Rates

Rates that vary with the time of day - higher during periods of peak use and lower during periods of low demand. Also known as Time-of-Use Rates, they differ from real-time pricing in that they are based on forecast, rather than actual, costs. While rates for real-time pricing fluctuate many times a day, time-of-day rates vary on a fixed schedule, usually in blocks of three to four hours.

Tolerable Zone

A band of voltages that is above and below the Preferred Zone. While not ideal, voltages in the tolerable zone permit customers' equipment to operate satisfactorily and without undue wear or damage, although performance may be compromised.

Transco

Short for transmission or transportation company. The bulk transmission part of a disaggregated electric utility, operated as a separate entity. Transmission lines are those fat wires you see cutting across golf courses and mountains. In the case of gas, it's the pipeline.

Transformer

A device that changes the voltage of alternating current.

Transition Costs

Costs associated with deregulating a formerly regulated industry. These costs include stranded costs. They occur when customers are permitted to switch providers before the original provider has recovered certain costs, including mandated purchased power arrangements, capital, taxes, and costs associated with social policy and environmental matters.

Transmission Grid

An interconnected system for transmitting power along high-voltage lines in bulk from points of supply to points of demand.

Unbundled Services

Energy services that are sold and priced separately, such as generation, transmission and distribution.

Vanilla

A plain transaction. For example, you own natural gas and you sell it.

Vertical Integration

A corporate structure in which one company owns all the different aspects of making, selling and delivering a product or service. A vertically integrated electric utility would own generation, transmission and distribution facilities.

Volatility

Changes in the commodity price. The more price changes, the greater the volatility and the greater the opportunity to make a profit through trading.

Volt

A unit of electromotive force. One volt, applied to a circuit with a resistance of one ohm, produces a current of one ampere. In the United States, electrical systems of most homes and offices are 110 volts.

Wellhead Price

The price paid to the producer for natural gas at the well.

Wet Gas

Natural gas that contains liquefiable hydrocarbons; also, natural gas that has more than seven pounds of water per million cubic feet.

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Gas And Electric Measures

The Lingo Of Gas Measures

Bcf

One billion cubic feet, a common measure of natural gas (see Cubic Foot).

British Thermal Unit (Btu)

The quantity of heat required to raise the temperature of one pound of water one degree Fahrenheit at a specified temperature. When it comes to natural gas, Btu's are divided into "dry" and "saturated." Natural gas that is moisture-free, or that contains less than seven pounds of water vapor per Mcf, is measured in dry Btu's; when natural gas is fully saturated with water vapor, under standard temperature, pressure and gravity conditions, it is measured in saturated Btu's.

Cubic Foot

The standard size of a New York apartment closet. Well, okay, it's a measure of natural gas volume, referring to the amount of gas needed to fill one cubic foot at standard atmospheric pressure and 60 degrees Fahrenheit. A cubic foot of gas contains approximately 1,000 Btu's, which is enough gas to boil a heckuva big pot of water.

Gigajoule

A unit of energy that equals 943,213.3 Btu's. That's enough gas to heat up a bigger bunch of water, like maybe a swimming pool.

Mcf

One thousand cubic feet, generally of natural gas (see Cubic Foot).

MMBtu

One million British thermal units (Btu's), also known as one dekatherm. It is equal to approximately 1,000 cubic feet of natural gas - enough energy to bring 800 gallons of water to a boil, or heat up 12,800 cups of coffee.

Mmcf

One million cubic feet, usually of natural gas.

Quad

One quadrillion British thermal units (Btu's), or the energy equivalent of 170 million barrels of oil. In a typical year, the United States uses an average of 83 quads.

Therm

A unit of heating value equal to 100,000 Btu's.

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The Lingo Of Electric Measures

Gigajoule

A unit of energy that equals 943,213.3 Btu's.

Gigawatt (GW)

One billion watts.

Gigawatt-hour (GWh)

One billion watt-hours.

Joule

A measure of energy equal to one watt-second, or one watt of power supplied to, or taken from, an electrical circuit steadily for one second.

Kilovolt (kV)

Electrical potential equal to 1,000 volts. Most car batteries are 12-volt, so 1 kV is the juice that could be produced by 83.3 car batteries.

Kilowatt (kW)

A unit of electric power equal to 1,000 watts. One kilowatt can light up ten 100-watt light bulbs.

Kilowatt-hour (kWh)

The basic unit for pricing electricity. A kilowatt-hour is equivalent to one kilowatt of power used for one hour. That's enough juice to run ten 100-Watt light bulbs for an hour. It equals 1,000 watt-hours and is the equivalent of 3,412 Btu's of energy.

Megawatt (MW)

A megawatt equals 1,000 kilowatts. One megawatt-hour is enough power to service 1,000 homes for about one day.

Watt

The basic unit for measuring volume of electricity. Technically, it's the power produced by a current of one ampere across a potential difference of one volt. For those who care, there are at least 135,000 ways to scientifically or mathematically define potential difference.

Terawatt-hours (TWh)

Equal to 1,000 gigawatt-hours, the terawatt is a commonly used energy yardstick in Europe.

Watt-hour (Wh)

One watt of power supplied to or taken from a circuit for one hour.

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How Are Utility Rates Set?

It happens to everyone, every month. You get your natural gas or electric bill, or both, and the back of your mind wonders: Why does it cost this much for something I don't see, feel, touch or eat? There are a lot of answers to that question, many of them dealing with the economics of energy. Books have been written about that subject, so let's move onto something that may be a little bit more concrete-the process used to set or establish the rates you pay for your gas and electricity.

In keeping with the simple approach employed in this booklet, let's just say it's basically a three-step process:

1. The utility applies to its state utility commission for approval to charge its customers a new rate, usually affected by the rising or falling costs of buying fuel (like natural gas to run a power plant), the cost of borrowing money to operate the business, recovering the costs to build new plants and other funding items like the rising cost of employee pension benefits.
2. The state commission and its staff, as well as consumer protection and industry groups, spend many months reviewing the request, as well as the company's operating data that is used to support the requested rate increase. Then other various parties voice their opinion to the members of the commission.
3. The commission makes its decision and the utility applies the new rate to its customers' bills.

Sounds simple enough. But, and there's always a but, the rate-making process also is a very detailed process that constantly and necessarily seeks public input. For example, any data used to support the utility's request is examined by the commission, its staff, the state's consumer protection office, as well as other interested consumer protection and industry groups. Also, the commission holds several public hearings throughout the state to find out how the public feels about the requested rate change, as well as the level of service provided by the utility.

At the same time, newspapers and other media publish stories about the request, and often offer their views.

Whether the utility distributes natural gas or electricity, it operates as a regulated monopoly. In essence, each company is authorized to provide service in a specific geographic area, under an exclusive franchise. In return for this monopoly, the utility is regulated by a state authority responsible for ensuring that the public receives what it is paying for.

The whole idea behind the rate-making process is to make sure that the utility is providing adequate service to its customers, and doing it as efficiently as possible.

As you might guess, there's a special language that goes along with this rate-making process. Here's a simplified look at those terms and what they mean:

Adjustments

Changes made in calculating a utility's test year costs to reflect constant expenses for the future.

Allocation of Costs of Service

Determination of how much each type of a utility's customers will pay for their service.

Annualized Costs

An adjusted amount to reflect increases in such costs during the test year for a full 12-month period.

Appeal

Request by any party in a rate case for reconsideration by the courts of a commission decision.

Briefs

Written arguments submitted to a commission by the parties in a rate case.

Commission

State authority, charged with regulating public utilities; may be called a Public Service Commission, Public Utilities Commission or Corporation Commission.

Cost of Service

Total dollars required to provide utility service (revenue requirements), including a fair return on investment.

Examiner

Commission examiner or a designated senior staff person, assigned by a commission, to conduct the rate case hearings; takes and studies evidence and makes a recommendation on findings to the commission.

Exceptions

Statement of disagreement with an examiner's recommendations to a commission, filed by any party in a rate case.

Fair Value

Current value of a facility, computed by taking the original cost and adding the cost of inflation from the time of construction to the present.

Fuel Cost Adjustment

Rate change which reflects an increase or decrease in the price of fuel used or sold by the utility, granted by a commission in a separate action apart from a general rate case.

Hearing

Public meeting at which a utility, intervenors and the commission staff present their arguments on a pending rate case.

Interim Rate Increase

Portion of a requested rate increase, authorized by a commission to be implemented before the final outcome of the rate case is determined. The reason for this adjustment is because the utility would experience a severe financial emergency without immediate rate relief.

Interrogatories

Requests from a commission staff or intervenors to a utility for supplemental information or clarification on a rate case petition.

Intervenors

Consumer and other interested groups who participate, with a commission's permission, in rate case hearings by presenting viewpoints and data and questioning witnesses.

Non-Recurring Cost

A one-time-only expense incurred by a utility, such as the cost of repairing storm damage to its facilities.

Normalization

Elimination of non-recurring expenses from test year costs.

Operating Costs

Expenses incurred by a utility in providing its products and services, including employee wages and benefits, maintenance, advertising and promotion, customer service, materials and supplies, fuel, administration, taxes, and depreciation.

Original Cost

Amount paid to construct a facility when it was built by the utility.

Prehearing Conference

Meeting of representatives from a commission, a utility and intervenors to set a schedule for rate case hearings, to limit issues to be considered in the case, and to establish facts on which all the parties agree.

Purchased Gas Adjustment Clause

Provision which permits a utility to pass on to consumers any increase or decrease in costs for the natural gas supply it purchases.

Rate Base (Investment Base)

Amount of money a utility has invested over the years in facilities that serve the customers, plus the amount of working capital required to keep the company going, less depreciation collected over the years.

Rate Case

Proceeding before a regulatory commission through which a utility seeks a change in the rates it charges its customers.

Rate Design

Allocation of a utility's cost of service to the various types of customers it serves.

Rate of Return

Percentage of a utility's investment allowed as profit and paid to stockholders in dividends or kept in the business as retained earnings.

Rate Order

Commission's decision in a rate case, stating the commission's findings on the utility's petition and an explanation of the basis for the order.

Regulated Monopoly

Company authorized to provide service in a specific geographic area under an exclusive franchise, meaning it has no competition.

Regulatory Lag

Amount of time that elapses between the filing of a rate case petition and issuance of the final rate order. It can also be the amount of time that elapses from the time an expenditure is made and lasts until that expenditure is recovered in rates.

Rehearing

Reconsideration of a rate order by a commission, requested by any dissatisfied party in a rate case.

Staff Report

Report of a commission staff on a rate case petition following the staff's investigation of the case.

Subject to Refund

Condition placed on rate increases that are put into effect prior to a final commission order. If the commission later decides on a lower amount, the utility gives back the money it receives under the preliminary rate increase.

Suspension

Delay in putting a rate increase into effect until the commission can study and rule on it.

Test Year

A recent 12-month period, often the previous calendar year, used as a basis in estimating future utility costs in a rate case.

Transcript

Written record of rate case proceedings, including the utility's case and documentation, cross-examination, the staff report and witnesses, and the intervenors' presentations and cross-examination.

Types of Customers

Residential, commercial and industrial groups purchase a utility's product or service.

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A Tradition Of Safety

Electricity Safety Tips:

Black Hills Energy delivers reliable electricity to hundreds of thousands of homes and businesses. Because the power lines that bring the convenience of electricity to customers have the potential to be hazardous, they must be respected. Safety is Black Hills Energy's top priority.

Serious shock or electrocution can occur when electricity contacts water. This can happen at a swimming pool or when an electrical appliance comes in contact with water. Shock or electrocution also can occur when objects contact overhead lines, when underground service lines are damaged or when fallen power lines are touched.

When an accident involves electricity, contact Black Hills Energy immediately at 1-800-694-8989. If your electric service is provided by another utility, please follow their notification procedures. The following safety tips are meant to help maintain your safety:

• Don't touch a fallen power line or attempt to rescue someone in contact with a power line. If a line falls on your car when you're in it, stay inside and wait for help.
• Never fly a kite or balloon near power lines. Don't climb trees that have power lines in contact with or near them.
• Don't allow children to play on the green pad-mount transformer used with underground power lines.
• Never use electric equipment if your hands or feet are wet or if you are standing on wet ground.

What Happens If The Lights Go Out?

Black Hills Energy is committed to providing safe and reliable service to its customers. On occasion, however, power can be disrupted by severe weather. To help you prepare for these occurrences:

• Set aside an emergency drawer that is easily accessible. Stock it with a battery-powered radio, flashlight and a supply of fresh batteries. During extended outage situations, Black Hills Energy works with local news agencies to keep customers informed of progress in service restoration.
• If any member of your family is on a life support system, make arrangements today to get them to a location where their needs can be met when a power outage occurs. In addition, you should contact Black Hills Energy's Customer Service Center at 1-888-890-5554 to make sure records show that a life support system exists at your location.
• If your power does go out, first check to see if your neighbors have lights. If they do, check for blown fuses or a tripped circuit breaker in your home. If they don't have lights or if you don't locate the problem, contact Black Hills Energy immediately at 1-800-694-8989.

When interruptions of electrical service do occur, Black Hills Energy makes every attempt to restore your power as quickly as possible. These situations are an inconvenience, and Black Hills Energy appreciates your patience as work continues to restore service.

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Natural Gas Safety Information

Helpful Tips To Follow

Black Hills Energy delivers reliable natural gas service to thousands of homes and businesses. And although natural gas has an excellent safety record, it is possible to have a gas leak by accident or through misuse.

Natural gas has no odor of its own. A special chemical called mercaptan is added to give natural gas its distinctive smell. Be alert for the smell of natural gas - sometimes compared to the odor of rotten eggs - and follow these tips if you smell it:

• Leave the premises immediately. Don't look for the source of the gas leak or try to correct the problem yourself.
• Go to a neighbor's house and call us immediately at 1-800-694-8989. If your natural gas service is provided by another utility, please follow their notification procedures.
• Don't strike matches, turn lights or appliances on or off, use the telephone, or ring the doorbell. These can create a spark, which could ignite the gas.
• Leave the doors and windows open, but don't open them if they're not already open

Avoid Carbon Monoxide

Carbon monoxide (CO) is a colorless, odorless and tasteless gas that can be potentially harmful to you and your family. The incomplete burning of fuels such as natural gas, propane, heating oil, kerosene, coal, charcoal, gasoline and wood produces CO.

It is important to make sure natural gas appliances are vented correctly and in proper working order; otherwise, they can produce harmful levels of CO.

Safety Precautions

You will probably never have a gas leak, but it's important that you and your family be informed of how to prevent a leak and what to do if one occurs. Here are some things you can do to help keep natural gas service safe:

• Arrange for natural gas appliances and equipment to be installed, inspected and/or repaired by a trained professional.
• Request the services of a qualified professional to check the flexible gas connectors used to connect natural gas appliances to supply lines. These connectors can separate from the tubing, causing serious gas leaks, explosion or fire. Only a qualified professional should check the connector and replace it if necessary. Don't try to do it yourself.
• Do not allow wiring or other objects to touch any gas connection or piping.
• Please review the "Call Before You Dig" phone numbers for your state and contact them in advance of planting a tree, building a fence or beginning any project that involves digging so that they can identify where utility pipes or wires may be located.

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Making Energy From Wind

With today's emphasis on finding renewable and "green" sources of energy, as well as reasserting America's energy independence, wind generated power is finally coming into its own. Wind power capacity has risen dramatically in the last few years.

Seasonality of wind activity varies by region. In California, the peak wind season is summer; in the Midwest, it's fall and winter; and in Texas, spring is peak. Each wind plant has specific daily and seasonal variations. Site-specific wind patterns are determined through studies conducted during early development of a project.

Wind energy has always been clean and renewable, but realizing man's dream to harness the wind to make significant amounts of electricity was frustratingly elusive during most of the last century. What changed was the economics. Big improvements in wind power technology lowered the costs of bringing this long-awaited energy source to market. In fact, the costs have dropped about 80 percent over the past 20 years, allowing wind power to approach the costs of traditionally-fueled generation. That helps explain why today wind energy is the fastest-growing renewable energy resource in the world.

Also, in the United States the federal Wind Production Tax Credit, first enacted in 1994, had a dramatic effect by providing a tax incentive to develop and operate wind generation facilities. For the first 10 years of a wind turbine's output, the owner receives a 1.8-cent tax credit per kilowatt-hour generated. The tax credit expired in December 2001 and was reinstated in March 2002. It expired at the end of 2003, although Congress is considering a further extension. An extension of the PTC through December 31, 2006 is contained in wide-ranging energy policy legislation on which Congress has been unable to reach final agreement. This tax credit has dramatically changed the landscape of the U.S. wind generation business and has helped encourage diversification of the nation's energy sources.

Today, wind still produces a pretty small percentage of the nation's electricity, but it's certain to continue to grow. The question is: by how much? The optimistic says perhaps to 6 percent of the country's electricity by 2020. That's about the same amount of electricity generated today through hydroelectric power and enough to serve 25 million homes. However, others are not that optimistic.

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How Wind Turbines Generate Electricity

1. The elaborate computer system inside a turbine performs thorough self-diagnostic tests and troubleshoots errors before the startup command is given. If the computer detects any problems it can't auto-correct, the turbine automatically shuts down. In addition, a SCADA (system control and data acquisition) control system allows a remote operator using a modem from anywhere in the country to set new operating parameters, perform system checks and ensure turbines are operating at peak performance.
2. The computer that automatically controls each turbine turns the turbine's rotor to face into the wind, which at more than 100 feet up is stronger and less turbulent than at ground level.
3. The rotor turns (depending on the type of wind turbine) at 11-20 rotations per minute (rpm). As the wind blows, the pitch of the rotor blade adjusts to suit changes in wind speed. For safety, the turbine shuts down automatically if sustained wind speed exceeds 56 miles per hour.
4. The blades drive the main shaft, which drives the generator through a gearbox to convert the mechanical power to electrical power.
5. The electricity is cabled down the tower, then through a series of transformers and underground distribution lines before entering a main substation.

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