natural gas, the electric utility industry has seen notable changes of regulatory structure and practice in recent years.

The Public Utility Regulatory Policy Act of 1979 (PURPA) and subsequent regulation and legislation, at both state and federal levels, have permitted non-utility generators (NUGs) to sell power to the transmission grid. PURPA provided the first opportunity since the development of the modern regulatory system for entry into the utility franchise by requiring electric utilities to purchase power offered by cogenerators, small power producers, and other qualifying facilities when the price of purchased power was below the utility's own avoided cost. Independent power producers (IPPs) were excluded from the provisions of PURPA, but later changes, such as enactment of EPACT that allows utilities and non-PURPA generators to compete on a wider scale in the wholesale power market, permitted and even encouraged electric utilities to acquire additional capacity and power from NUGs without regard to PURPA's qualification requirements (Harunuzzaman et al., 1994). Increasingly, access to the transmission and distribution network is being proposed for a variety of currently captive customers. Although there are many problems to be resolved, deregulation of the electric utility industry is expected to continue, to probably intensify, and to become one of the dominant strategic concerns of electric utility managers.

For this report the question at issue is how the industry's deregulation should shape DOE's coal program. The principal areas of concern appear to be the power generation industry's ability to develop and adopt promising new technology and the availability of electricity produced jointly with other products, as in cogeneration of power and steam.

Introduction of New Technology

The electric utility industry's former regulatory structure provided a highly favorable environment for introducing new technology: the return of prudently incurred costs was allowed, reducing commercialization risks. The efficiency of conventional coal-fired power plants increased markedly from the early 1900s until the 1960s without the benefit of significant federal R&D funding. Beginning in the 1960s, the industry commercialized nuclear power based on federally funded R&D. Since the early 1970s the industry has also funded significant R&D through the EPRI, with most members' contributions incorporated into the rate structures approved by regulatory commissions.

As regulatory structures loosen and competition intensifies, new entrants and less-protected utilities may be unwilling or unable to accept the risks of commercialization or to fund industrywide R&D. In this regard the power generation industry differs markedly from the pharmaceutical and telecommunications industries, for example, largely because of the nature of its product. The influence of increasing competition in the electric utility industry can already be observed in the reliance on NUGs for additional increments of capacity and in the shift of



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