Wiktor Wise
The provision of electricity is a public service that can be delivered by either government-owned (public) or private companies. In the US, the electricity market is a mix of public and private utilities, with investor-owned utilities serving 72% of electricity customers in 2017. Public utilities are owned and operated by local, state, or federal governments, while private utilities are owned by investors and operate for profit. Publicly-owned utilities are embedded in the communities they serve and support a range of community programs, while private utilities are often regulated monopolies in their service areas.
| Characteristics | Values |
|---|---|
| Types of ownership | Publicly owned, investor-owned, and cooperatives |
| Publicly owned utilities | Owned and operated by local, state, or federal governments |
| Investor-owned utilities | Owned by investors and operate for profit |
| Cooperatives | Owned by customers and are usually found in rural areas |
| Number of electric distribution companies in the US | 3,000 |
| Percentage of U.S. electricity customers served by investor-owned utilities in 2017 | 72% |
| Largest investor-owned utility | Pacific Gas and Electric |
| Number of customers of the largest investor-owned utility | 5.48 million |
| Largest publicly owned utility | Puerto Rico Electric Power Authority (PREPA) |
| Number of customers of the largest publicly owned utility | 1.47 million |
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What You'll Learn
- Investor-owned utilities served 72% of US electricity customers in 2017
- Publicly-owned utilities include federal, state and municipal-run entities
- Cooperatives are not-for-profit, member-owned utilities
- Private utilities are owned by investors and operate for profit
- Public utilities are regulated by government-appointed commissions
Investor-owned utilities served 72% of US electricity customers in 2017
Electric companies can be either government-owned (public) or owned by private companies (private). In the US, the electricity sector consists of investor-owned utilities, publicly run or managed utilities, and cooperatives. Investor-owned utilities, or IOUs, are large electric distributors that issue stock owned by shareholders. They are most prevalent in heavily populated areas on the East and West coasts.
In 2017, almost 3,000 electric distribution companies, or utilities, were operating in the United States. Of these, 168 were IOUs, serving an average of 654,600 electric customers each. This means that 72% of US electricity customers in 2017 were served by investor-owned utilities. The two largest IOUs are in California: Pacific Gas and Electric, with 5.48 million customers, and Southern California Edison Company, with 5.07 million customers.
Publicly owned utilities, or POUs, include federal, state, and municipal-run utilities. In addition, political subdivisions may run POUs, also called public utility districts, which are utilities that residents vote into existence and that operate independently of city or country government. The United States has 1,958 POUs, with an average of 12,100 electricity customers each. The largest POUs are the state-run Puerto Rico Electric Power Authority (PREPA), with 1.47 million customers, and the Los Angeles Department of Water and Power, a municipal utility with 1.43 million customers.
Cooperatives, or co-ops, are not-for-profit member-owned utilities. Co-ops are located in 47 states but are most prevalent in the Midwest and Southeast. The United States has 812 co-ops, with an average of 24,500 electricity customers each. The largest co-op is Pedernales Electric Co-op, in Johnson City, Texas, with 333,809 customers.
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Publicly-owned utilities include federal, state and municipal-run entities
Public utilities are essential services that include electricity, gas, water, sewage, and waste management. They are owned and operated by local, state, or federal governments on behalf of citizens and customers in that area. Publicly-owned utilities include federal, state, and municipal-run entities.
In the United States, there are 1,958 publicly-owned utilities (POUs) with an average of 12,100 electricity customers each. The largest POUs are the state-run Puerto Rico Electric Power Authority (PREPA), with 1.47 million customers, and the Los Angeles Department of Water and Power, a municipal utility with 1.43 million customers.
Publicly-owned utilities are not profit-driven, and any revenue earned is invested back into maintaining infrastructure and operations. They are regulated by government-appointed commissions that oversee pricing and service standards.
The history of public utilities in the US dates back to the late 1800s and early 1900s when municipalities ran most utilities. By 1923, more than 3,000 utilities were in operation. However, technological advancements later made smaller plants uneconomical, leading many cities to sell their equipment and transfer customers to investor-owned utilities (IOUs).
Today, investor-owned utilities serve a significant portion of electricity customers in the US, with almost three-quarters of customers getting their electricity from these companies. Despite this, publicly-owned utilities continue to play a crucial role in providing essential services to communities across the country.
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Cooperatives are not-for-profit, member-owned utilities
Electric companies can be government-owned, or owned by private companies. In the US, the Energy Information Administration (EIA) classifies utilities into three ownership types: investor-owned utilities, publicly run or managed utilities, and cooperatives.
Cooperatives, or co-ops, are not-for-profit, member-owned utilities. Members are individuals who share ownership of the cooperative and are its customers. Joining is voluntary, and members run the company democratically, with each member having equal status and a vote. This is in contrast to publicly held companies, which are typically owned by shareholders who collect dividends. Co-ops are located in 47 US states but are most prevalent in the Midwest and Southeast.
Co-ops are responsible for delivering critical utilities to their members, such as electricity, water, and telecommunications. They are built by and belong to the communities they serve, and are well-suited to meet local needs. They are particularly prevalent in rural areas, where they have helped improve the quality of life by providing access to necessities like water and power. For example, in the 1930s, 90% of US citizens in cities had electricity, while 90% of rural homes did not. Co-ops were created by the New Deal to address this disparity and bring power to rural areas.
Co-ops are not driven by profit, and they reinvest their profits into infrastructure or distribute them to members. They are focused on serving their member-customers and the community, and many cooperatives partner with local organizations to support small businesses and create new jobs. They also strive to provide reliable and affordable energy, and have been successful in this regard, with co-ops securing seven of the top 10 spots in the 2023 J.D. Power Electric Utility Residential Customer Satisfaction Study.
Co-ops also provide other benefits to their communities, such as creating local jobs and delivering cultural and social benefits. They provide a framework for community members to access crucial services like telehealth and online education. Additionally, co-ops are taking steps towards sustainability and reducing emissions, such as through switching to natural gas and renewables.
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Private utilities are owned by investors and operate for profit
Private utilities are driven by the motivation to maximize profits and shareholder returns, which can lead to efficient operations and capital for upgrades. They are most prevalent in heavily populated areas on the East and West coasts of the United States. In 2017, investor-owned utilities served 72% of U.S. electricity customers, with an average of 654,600 electric customers each.
Examples of large investor-owned electric utilities in the United States include Pennsylvania Power & Light (PPL) and California American Water CalAm. PPL, as a for-profit private company, prioritizes shareholder returns, earnings growth, and high credit ratings to access capital markets. Similarly, CalAm's water rates are driven by the profit imperative as shareholders seek predictable earnings and dividends.
In contrast, public utilities are owned and operated by local, state, or federal governments on behalf of citizens and customers in their area. They are not profit-driven, and any revenue earned is reinvested into maintaining infrastructure and operations. Public utilities focus on serving the public interest and addressing community complaints. An example of a public utility is the Los Angeles Department of Water and Power (LADWP), which maintains low electricity rates and high customer satisfaction ratings.
The debate between public and private ownership of utilities is complex, with valid arguments on both sides. Proponents of public ownership argue that it ensures community-focused management and operations, while critics point to the potential for red tape and lack of agility in responding to evolving consumer and infrastructure needs. On the other hand, private ownership can bring expertise from dedicated utility management professionals and efficient operations driven by profit motives.
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Public utilities are regulated by government-appointed commissions
Electric companies can be either publicly or privately owned. Publicly-owned utilities are run by local, state, or federal governments, while private utilities are owned and operated by private companies.
In the United States, each state has its own public utilities commission, and there is a National Association of Regulatory Utility Commissioners (NARUC) that represents the interests of these commissions. The NARUC's mission is to improve the quality and effectiveness of public utility regulation, ensuring reliable utility services at fair and reasonable rates.
The first electric distribution utility in the United States was Pearl Street Station, built by the Edison Illuminating Company in Lower Manhattan, New York, in 1882. Before this, Americans who wanted electricity in their homes had to use generators. Over time, the modern electricity distribution method spread to other cities and densely populated areas. By the early 1900s, municipalities ran most utilities, and more than 3,000 existed by 1923.
Today, investor-owned utilities (IOUs) serve a significant portion of electricity customers in the United States, with 72% of customers served by these large, privately owned electric distributors as of 2017. However, publicly-owned utilities continue to play a crucial role in providing essential utility services to citizens.
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Frequently asked questions
A public utility company, or simply utility, is an organization that maintains the infrastructure for a public service and provides a service using that infrastructure. They are subject to public control and regulation and supply essential goods and services such as water, gas, electricity, and telephone services.
Public utilities are owned and operated by local, state, or federal governments on behalf of citizens and customers in that area. They are non-profit and do not aim to make a profit for their shareholders. Private utilities, on the other hand, are owned and operated by private companies and aim to maximize shareholder returns.
Some examples of public utilities include the Los Angeles Department of Water and Power, which maintains low electricity rates and high customer satisfaction ratings, and the Puerto Rico Electric Power Authority (PREPA).
An example of a private utility is Pennsylvania Power & Light (PPL) corporation, which is one of the largest investor-owned electric utilities in the USA, serving 1.4 million customers in Pennsylvania.
Yes, citizens can decide whether their community-owned utility can be sold to a private entity.
