Beatrice Lang
The ownership of electric companies is a complex topic that varies across different countries and regions. Typically, electric companies can be classified as either publicly or privately owned. Publicly owned utilities, often referred to as POUs, are owned and operated by government entities or political subdivisions, including federal, state, or municipal governments. On the other hand, privately owned utilities, also known as investor-owned utilities (IOUs), are owned by investors and operate for profit. In the United States, for example, investor-owned utilities served approximately 72% of electricity customers in 2017, while publicly owned utilities, such as cooperatives and municipal utilities, served the remaining customers. The discussion around public versus private ownership of electric companies often revolves around factors such as efficiency, quality of service, and the ability to meet the public's demand for clean energy.
| Characteristics | Values |
|---|---|
| Types of ownership | Publicly owned, privately owned, or a mix of both |
| Public ownership | Government-owned, cooperative, or municipal |
| Private ownership | Investor-owned |
| Examples of public ownership | State-run Puerto Rico Electric Power Authority (PREPA), Los Angeles Department of Water and Power, Santa Clara's SVP |
| Examples of private ownership | Pacific Gas and Electric, Southern California Edison Company |
| Performance | No major differences in efficiency and quality of services between public and private ownership |
| Customer preference | Some customers prefer public ownership as it is better suited to respond to the public's growing demand for clean energy |
| Regulation | Regulated by a public utilities commission or an electricity sector regulator |
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What You'll Learn
Publicly owned utilities
Public power utilities are governed by a local city council or an elected or appointed board. Community citizens have a direct voice in utility decisions, including the rates charged and the sources of electricity. Citizens also have a say in whether their community-owned utility can be sold to a private entity.
Public power utilities are better suited to respond to the public’s growing demand for clean energy. They are structurally geared towards the needs of the community they serve and are embedded into the fabric of their communities, supporting a range of community programs including charitable, educational, and beautification initiatives. Public power utilities also generate revenue for the community through taxes, fees, and special services.
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Investor-owned utilities
In the United States, the electricity sector consists of almost 3,000 electric distribution companies, or utilities, which the EIA (Energy Information Administration) classifies 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, with accusations that they have prioritised profits over system maintenance and energy efficiency. For example, in California, PG&E has been blamed for wildfires sparked by downed wires, with a federal judge finding that the company increased investor dividends instead of removing trees that could pull down power lines.
To address these issues, communities are working towards solutions such as requiring IOUs to provide "community choice" programs that enable customers to use clean energy, as well as investing in renewable energy sources and energy efficiency measures.
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Public utilities commissions
A public utilities commission (PUC) is a quasi-governmental body that provides oversight and/or regulation of public utilities in a particular area (locality, municipality, or subnational division). They are especially prevalent in the United States and Canada. The utilities in question may be owned by the consumers that it serves, or they could be state-owned or stockholder-owned. These utilities often operate as legal monopolies, meaning they are regulated by commissions to ensure fair pricing.
In the US, a PUC may also be named a public service commission (PSC), corporation commission, or something similar. It is a governing body that regulates the rates and services of a public utility, such as an electric utility. The National Association of Regulatory Utility Commissioners is the national association representing the interests of the PUCs in all 50 states. The Interstate Commerce Commission and Federal Communications Commission perform similar functions in their respective fields.
The first state utility regulator was the Public Service Commission of Wisconsin, founded in 1907. When a utility applies to the PUC/PSC for a rate change, the relevant commission alerts ratepayers through legal notices in local newspapers and press releases. Major rate cases usually receive widespread media coverage, and the commission often holds public hearings to hear from customers and other affected stakeholders. Interested parties can formally participate in the ratemaking process by intervening and becoming parties to the case, usually through legal representation.
The PUC/PSC also plays a role in promoting clean energy access. For example, in 2013, the Georgia Public Service Commission ordered the state's largest electric utility, Georgia Power Company, to increase its solar power capacity by 525 megawatts by the end of 2016.
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Public control and regulation
Public utilities are subject to various forms of public control and regulation, which can range from local community-based groups to statewide government monopolies. Public control and regulation of electric companies can take several forms, including:
Government Ownership
Publicly owned utilities (POUs) can be federal, state, or municipal-run. In the US, there are 1,958 POUs, with an average of 12,100 electricity customers each. Examples include the state-run Puerto Rico Electric Power Authority (PREPA) and municipal utilities like the Los Angeles Department of Water and Power. POUs are not-for-profit and are meant to provide essential services at stable and predictable prices.
Co-operatives
Cooperatives, or co-ops, are not-for-profit member-owned utilities. They are located in 47 states but are most prevalent in the Midwest and Southeast regions of the US. Co-ops are typically found in rural areas and are owned and controlled by the customers they serve.
Public Utilities Commissions
A public utilities commission is a governmental agency that regulates the commercial activities of electric companies, natural gas providers, telecommunications firms, water suppliers, and transportation companies. These commissions ensure that utilities operate in the public interest, promoting fair rates and safe practices.
Public-Private Partnerships
In some cases, public control and regulation can take the form of public-private partnerships. These mixed ownership structures combine the expertise and resources of the private sector with the public interest focus of government involvement. This model may be more conducive to utility performance and can help attract investment while maintaining public oversight.
Community Choice Aggregation (CCA)
CCA, also known as municipal aggregation, is a form of public control where local governments aggregate the electricity demand of their residents and businesses to procure energy on their behalf. This allows communities to choose their energy sources and negotiate rates, providing more options for renewable energy and potentially lower prices.
While public ownership models can provide benefits such as alignment with public policies and goals, it's important to note that they are not a panacea. They may face challenges such as legacy costs and long-term investment decisions. Additionally, the impact of ownership structure on efficiency and quality of service is nuanced and dependent on various factors, including a country's production capacity and the presence of an independent electricity sector regulator.
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Natural monopolies
Electric companies can be owned by the state, private investors, or customer-owners. In the US, investor-owned utilities served 72% of electricity customers in 2017, while the remaining 28% were served by publicly owned utilities.
Publicly owned utilities, or POUs, include federal-, state-, and municipal-run utilities. In addition, political subdivisions may run POUs, also called public utility districts—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.
Whether state-owned or not, electric companies can be considered natural monopolies. A natural monopoly occurs when a company has exclusive control over a particular good or service, and consumers are unresponsive to price changes. In the case of electric companies, the high costs of building power plants and power grids, as well as the economies of scale, make it more efficient for a single entity to control the market in a given geographic area. This creates extremely high barriers to entry for competitors and makes it difficult for customers to switch providers.
While natural monopolies can be efficient in terms of cost and infrastructure, they can also lead to a lack of innovation and a decrease in product quality. Without competition, companies have little incentive to improve their products or services. In the case of electric companies, government regulation is often necessary to keep prices in check and ensure that the company is not taking advantage of its monopoly power.
Some argue that the electric company monopolies should be abolished to allow competition to emerge and drive down prices. However, others point out that the existence of retail competition does not necessarily mean that the market is efficient, as a natural monopoly may still be vulnerable to inefficient competition.
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Frequently asked questions
Electric companies can be state-owned, privately owned, or a mix of both. In the US, publicly owned utilities are called POUs and include federal, state, and municipal-run utilities. Investor-owned utilities, on the other hand, are owned by investors and operate for profit.
Publicly owned electric companies are non-profit and are better suited to respond to the public's growing demand for clean energy. Decisions about renewable programs, rates, and budget are made by the local government, allowing the utility company to align with the city's policies and goals.
Private electric companies are more flexible and can make decisions without going through government processes. They also have access to capital and can invest in new technologies and innovations more quickly.
