Wiktor Wise
Electric companies can be either public or private entities. In the US, there are three types of electric power utility ownership structures: public power utilities, rural electric cooperatives, and investor-owned utilities (IOUs). IOUs are large electric distributors that issue stock owned by shareholders and tend to serve heavily populated areas. On the other hand, public power utilities are not-for-profit, community-owned entities that provide electricity at lower rates. While public companies generally charge lower rates and have better reliability, private companies often target high-income customers and charge higher rates.
| Characteristics | Values |
|---|---|
| Types of ownership | Public power utilities, rural electric cooperatives, and investor-owned utilities (IOUs) |
| Investor-owned utilities in 2017 | 72% of U.S. electricity customers |
| Number of electric distribution companies in the U.S. in 2017 | 3,000 |
| Largest IOUs | Pacific Gas and Electric, Southern California Edison Company |
| Publicly owned utilities (POUs) | Federal-, state-, and municipal-run utilities |
| Number of POUs | 1,958 |
| Largest POUs | Puerto Rico Electric Power Authority (PREPA), Los Angeles Department of Water and Power |
| Cooperatives | Not-for-profit member-owned utilities |
| Number of states with cooperatives | 47 |
| Public power utilities | Not-for-profit entities that provide electricity at the lowest rates |
| Public power utilities customer base | More than 55 million Americans |
| Public power utilities' contribution to electricity in the U.S. | 10% of generation, 15% of distribution |
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What You'll Learn
Public power utilities
Publicly owned utilities (POUs) include federal-, state-, and municipal-run utilities. In addition, political subdivisions may run POUs, also known as public utility districts, which 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) and the Los Angeles Department of Water and Power, a municipal utility.
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Investor-owned utilities
In the United States, the U.S. Energy Information Administration (EIA) classifies utilities into three ownership types: investor-owned utilities, publicly run or managed utilities, and cooperatives.
IOUs have been criticised for their negative impact on the environment and public health, as well as their monopoly status. Due to their size and influence, IOUs have been able to conduct business without considering the environmental and health consequences. However, communities across the country are working towards solutions, such as transitioning IOUs to community control or encouraging investment in renewable energy sources.
To address the challenges posed by IOU monopolies, some have suggested transitioning to community-controlled energy systems, similar to municipal utilities or electric cooperatives. Others advocate for smaller changes, such as requiring IOUs to provide "community choice" programs that enable customers to use clean energy through utility-managed initiatives or customer-owned rooftop solar. Additionally, IOUs can be regulated by state utility commissions that oversee electric rates and other aspects of their business models. However, these commissions may be influenced by corporate lobbying, potentially impacting their effectiveness in protecting customers' interests.
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Public vs private power
Electric companies can be either public or private. Public companies are owned by cities, towns, counties, public utility districts, or states. They are not-for-profit and are community-owned or member-owned. Rural electric cooperatives are an example of the latter, with more than 900 local cooperatives providing electric service to more than 56% of the U.S.'s landmass. On the other hand, private companies are investor-owned utilities with private boards and shareholders who reap the profits.
Public and private companies have their benefits and limitations. Private electricity producers generally target high-income customers as they charge higher monthly rates. Public companies, on the other hand, charge about 13% lower rates compared to private entities. As a result, more individuals can rely on clean power and reduce their carbon footprint when utilities are affordable. Private companies are also monopolies with public oversight.
Public companies can enhance consumer support and improve renewable energy supplies' accessibility. For example, Texas may be able to produce more than 38,000 megawatts (MW) of wind power if the state creates more public renewable energy companies. Additionally, when the government works with public companies, they can establish resilience-enhancement methods and improve the power grid's stability. Wind turbines, for instance, generate more electricity during storms that cause conventional grid outages.
Private companies served 72% of U.S. electricity customers in 2017, with the two largest IOUs being in California: Pacific Gas and Electric and the Southern California Edison Company. Private companies are also more prevalent in heavily populated areas on the East and West coasts.
In conclusion, both public and private power companies have their advantages and disadvantages. Public power companies can provide more affordable and accessible energy, especially in rural areas, and can help improve renewable energy supplies and grid stability. Private power companies, on the other hand, tend to serve more customers, especially in heavily populated areas, but charge higher rates. Ultimately, the decision between public and private power companies may depend on a region's specific needs and priorities.
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Community-owned utilities
In the United States, there is only one state where every resident and business receives electricity from a community-owned institution: Nebraska. The state has 121 publicly owned utilities, ten cooperatives, and 30 public power districts providing electricity to around 1.8 million people.
There are more than 800 rural electric cooperatives in rural and suburban communities in the US, and they represent a significant force for driving the clean energy transition. In addition, municipal utilities are typically smaller than investor-owned (for-profit) utilities, and they are often left out of the energy transition conversation. However, because they are governed through local control and do not have the same profit motive as investor-owned utilities, they can deliver substantial benefits to their communities through the clean energy transition.
Proponents of public utilities argue that they are inherently better for ratepayers because they remove profit-driven investors from the equation. The model is structurally geared toward the needs of the community it serves. Public utilities are also generally more reliable and have lower rates. For example, in Omaha, Nebraska, voters elect the members of the utility board of directors, and each year, a portion of the profits are given back to the city to be spent at the city council's discretion.
Public utilities are also better suited to respond to the public's growing demand for clean energy. There aren't layers between the policymakers and customers, as there are with investor-owned utilities, state governments, and utility commissions. As a result, important decisions aim to keep ratepayers at the forefront while continuing to enhance reliability and system improvement.
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Cooperatives
Electric cooperatives, or co-ops, are private, non-profit organisations owned and operated by their members or customers. They are an alternative to commercial utility companies and are dedicated to providing electricity to rural areas. Electric cooperatives are community-focused and aim to improve the sustainability and well-being of the communities they serve.
Co-ops are governed by a board of directors that are nominated and voted on annually by the entire membership. Each customer is a member and owner of the business, and members have equal status and influence. They are encouraged to participate in policymaking and share their ideas and concerns.
Co-ops are required to reinvest revenue into their communities through stable rates, infrastructure development, or returning it to members through patronage capital or capital credits. They are also committed to reducing emissions and incorporating renewable energy sources.
In the United States, electric cooperatives were established as part of President Roosevelt's "New Deal" in the 1930s to bring electricity to rural areas that were previously unserved by investor-owned utilities. The Tennessee Valley Authority (TVA) was created, followed by the Rural Electrification Administration (REA) and the Rural Electrification Act, which provided federal funding and loans for this initiative. Today, co-ops serve 42 million people in 48 states and play a vital role in economic development.
There are two main types of electric cooperatives: distribution cooperatives and generation and transmission (G&T) cooperatives. Distribution cooperatives deliver electricity and other services to end-users, such as residences and businesses, who are also their members. G&T cooperatives sell wholesale power to distribution cooperatives and are owned by their member co-ops.
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Frequently asked questions
There are three types of electric power utility ownership structures: public power utilities, rural electric cooperatives, and investor-owned utilities (IOUs).
The Los Angeles Department of Water and Power is a municipal utility and an example of a public power utility.
Pacific Gas and Electric is an example of an investor-owned utility and has 5.48 million customers.
Public companies charge about 13% lower rates compared to private companies.
Public power utilities are not-for-profit entities that provide electricity to customers at the lowest rates. They are also more reliable, with customers experiencing 90 fewer minutes without power per year compared to customers of private utilities.
