Otis Singleton
The availability of multiple electric utilities in a state depends on several factors, including the state's regulatory environment, population density, and historical context. Some states have deregulated their electricity markets, allowing for competition between energy suppliers and providing consumers with choices. In these deregulated states, consumers can choose their electricity provider, similar to how they might select a mobile phone or internet plan. On the other hand, regulated states typically have a single utility provider that is overseen by the state's Public Utility Commission (PUC), ensuring fair rates and compliance with regulations. Population density also plays a role, as investor-owned utilities (IOUs) tend to serve heavily populated areas, while cooperatives or co-ops are more prevalent in rural areas. Additionally, historical factors, such as the Rural Electrification Act of 1936, have influenced the formation of cooperatives to bring electricity to underserved communities. As of 2017, the United States had almost 3,000 electric distribution companies or utilities, with a mix of investor-owned, publicly managed, and cooperative ownership structures.
| Characteristics | Values |
|---|---|
| Number of electric distribution companies in the US in 2017 | 3,000 |
| Number of cooperatives or co-ops in the US | 812 |
| Number of states with co-ops | 47 |
| Most prevalent areas for co-ops | Midwest and Southeast |
| Largest co-op in the US | Pedernales Electric Co-op, Johnson City, Texas |
| Number of customers of the largest co-op | 333,809 |
| Percentage of U.S. electricity customers served by investor-owned utilities in 2017 | 72% |
| Average number of electricity customers served by co-ops | 24,500 |
| Average number of electricity customers served by IOUs in 2017 | 654,600 |
| States with electricity choice for residential and non-residential consumers | Ohio, Texas, Pennsylvania, Oregon, Virginia |
| States with no competitive energy supplier choice | Oklahoma, Utah, Vermont, West Virginia, Wisconsin, Wyoming |
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What You'll Learn
- Investor-owned utilities: Large companies that issue stock and are owned by shareholders
- Cooperatives: Not-for-profit, member-owned utilities prevalent in the Midwest and Southeast
- Deregulation: Opening up electricity supply to competition from local utilities or private REPs
- Regulated states: States that do not offer consumers a choice between retail energy suppliers
- RTOs: Regional transmission organizations that operate wholesale markets for electricity
Investor-owned utilities: Large companies that issue stock and are owned by shareholders
The United States has a complex energy market with multiple types of utilities operating across different states. One of the key players in this market is investor-owned utilities (IOUs). These are large, for-profit corporations that issue stock and are owned by public or private shareholders. Most IOUs are publicly owned, with stocks traded publicly, while others are owned by private equity. They provide electricity, gas, or both, to their customers.
IOUs are a significant force in the US energy sector, serving three out of every four utility customers nationwide, according to the US Energy Information Administration's (EIA) 2017 data. This equates to 72% of US electricity customers, with the number of IOUs being 168, serving an average of 654,600 electric customers each. IOUs are most prevalent in heavily populated areas on the East and West coasts. The two largest IOUs are in California: Pacific Gas and Electric, with 5.48 million customers, and the Southern California Edison Company, with 5.07 million customers.
The size and influence of these companies are such that they require regulation to ensure the interests of consumers are preserved. Regulators assign each IOU a specific franchise service territory, and they are responsible for serving all consumers within that area exclusively. The regulator also determines the rates the IOU can charge and sets the conditions under which the utility can earn a profit.
The history of IOUs is also interesting. The first electric distribution utility in the US was Pearl Street Station, built by the Edison Illuminating Company, led by Thomas Edison. It began operating in Lower Manhattan, New York, in 1882. Before this, Americans who wanted electricity in their homes had to use generators. As this modern electricity distribution method spread to other cities, local governments in smaller towns and cities began setting up their own electric distribution utilities. By the late 1800s and early 1900s, municipalities ran most utilities, and more than 3,000 existed by 1923.
In summary, IOUs are a vital part of the US energy landscape, serving a large portion of the country's electricity customers. They are large, shareholder-owned companies that require careful regulation to protect consumer interests.
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Cooperatives: Not-for-profit, member-owned utilities prevalent in the Midwest and Southeast
In the United States, electric utilities are typically classified into three ownership types: investor-owned utilities, publicly-run or managed utilities, and cooperatives (or co-ops). Cooperatives are not-for-profit, member-owned utilities that are prevalent in 47 states, particularly in the Midwest and Southeast.
Co-ops are a result of farmer communities' efforts to bring electricity to areas that were not covered by investor-owned utilities (IOUs) or municipal utilities. The first electric distribution utility in the nation was Pearl Street Station, built by the Edison Illuminating Company led by Thomas Edison. However, before this, Americans who wanted electricity in their homes had to rely on generators. As electricity distribution spread to other cities and populated areas, local governments in smaller towns and cities began setting up their own electric distribution utilities. By the early 1900s, municipalities ran most utilities, but technological advancements later made smaller plants uneconomical, leading to the sale of equipment and transfer of customers to IOUs.
The Rural Electrification Act of 1936 was a federal loan program that provided electricity to rural populations, and it was a catalyst for the formation of farmer cooperatives. These cooperatives are now located across 47 states, with an average of 24,500 electricity customers each. The largest co-op is the Pedernales Electric Co-op in Johnson City, Texas, with nearly 50% more customers than the second-largest co-op in Jefferson, Georgia.
While cooperatives are prevalent in the Midwest and Southeast, IOUs are more common in heavily populated areas on the East and West coasts. In states with deregulated energy markets, consumers have a choice between different retail energy suppliers, which encourages competition and often results in better rates, services, and products for customers. However, regulated states do not offer this choice, and the rates and services provided by electric utilities are overseen by the state's Public Utility Commission (PUC) to ensure fairness and compliance with regulations.
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Deregulation: Opening up electricity supply to competition from local utilities or private REPs
Deregulation in the electricity sector separates the delivery of electricity from the supply. This means that while utilities are still responsible for delivering and maintaining electricity infrastructure, the supply of electricity is opened up to competition. This can be provided by a local utility company or a private Retail Energy/Electricity Provider (REP).
In the United States, there are three types of utility companies: investor-owned utilities (IOUs), publicly-run or managed utilities, and cooperatives (co-ops). IOUs are large electric distributors that issue stock owned by shareholders. In 2017, IOUs served three out of four utility customers nationwide, or 72% of U.S. electricity customers. IOUs are most prevalent in heavily populated areas on the East and West coasts.
Publicly-run or managed utilities are owned and operated by the city or municipality in which they are located. In the late 1800s and early 1900s, municipalities ran most utilities, but technological improvements later made smaller plants uneconomical, leading many cities to sell their equipment and transfer their customers to IOUs.
Co-ops are not-for-profit, member-owned utilities that are located in 47 states and are most prevalent in the Midwest and Southeast. The largest co-op is the Pedernales Electric Co-op in Johnson City, Texas, with 333,809 customers.
Deregulation in the electricity sector has led to the establishment of Retail Energy Suppliers, providing consumers with more options and generally more competitive rates, services, and products. However, it is important to note that customer choice only applies to the generation portion of a customer's utility bill, as transmission and distribution services are still provided by the local utility company as a natural monopoly.
Some states have chosen to embrace certain aspects of deregulation while maintaining some parts of regulation. For example, some states with vertically integrated utilities join a Regional Transmission Organization (RTO) for grid services. RTOs have replaced utilities as grid operators and wholesale market operators for electricity in deregulated states.
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Regulated states: States that do not offer consumers a choice between retail energy suppliers
Regulated states are those that do not offer consumers a choice between retail energy suppliers. In these states, electricity comes from a designated utility provider, and consumers do not have a choice. Regulated energy markets create a form of monopoly, meaning there are no competitors to choose from or switch to, and the public utility is still regulated by the state government.
In regulated states, governing bodies manage a regulated monopoly, where one company provides the utility across the state, with rates and prices controlled by the government. Regulated utilities base retail rates on a regulated rate of return on investments.
The majority of states' energy markets are regulated monopolies, so consumers cannot choose their electricity provider. Investor-owned utilities served 72% of U.S. electricity customers in 2017. These utilities are most prevalent in heavily populated areas on the East and West coasts.
Some states with regulated energy markets include West Virginia, Wisconsin, Utah, Vermont, and Wyoming.
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RTOs: Regional transmission organizations that operate wholesale markets for electricity
In the United States, there are almost 3,000 electric distribution companies, or utilities, in operation. These utilities are classified into three ownership types: investor-owned utilities, publicly run or managed utilities, and cooperatives. Investor-owned utilities, or IOUs, are large distributors that issue stock owned by shareholders. IOUs tend to be very large and serve three out of every four utility customers nationwide. In contrast, cooperatives, or co-ops, are not-for-profit, member-owned utilities located in 47 states, with an average of 24,500 electricity customers each.
While states set their own clean energy goals and utility policies, wholesale markets and electricity transmission between states are regulated by the Federal Energy Regulatory Commission (FERC). In many cases, this is organized through regional transmission organizations (RTOs). RTOs are independent, membership-based, non-profit organizations that ensure reliability and optimize supply and demand bids for wholesale electric power. Ten RTOs operate bulk electric power systems across much of North America, managing about 60% of the power supplied to load-serving entities.
RTOs were first developed in the 1990s to accommodate FERC's policy of encouraging competitive generation by requiring open access to transmission. They evolved from power pools that had coordinated utility operations for decades, particularly in the Northeast. In regions without markets operated by an RTO, wholesale sales are conducted bilaterally, through direct contact and negotiation, or through an electronic brokerage platform. RTO markets provide for the wholesale sale of electric energy, both day-ahead and real-time purchases, as well as ancillary services. Some RTOs also operate capacity markets.
RTOs are responsible for various functions, including designing and running energy spot markets, managing capacity markets, transmission planning, providing transmission services, and administering a generator interconnection process. They also help with transmission development by authorizing cost allocation and reimbursing utilities for infrastructure upgrades. During major weather events, RTOs can broaden the pool of available resources, making the grid more reliable and efficient.
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Frequently asked questions
Yes, some states have multiple electric utilities. In the United States, there are almost 3,000 electric distribution companies, or utilities, operating across the country. These utilities can be publicly or privately owned and are typically regulated by the state's Public Utility Commission (PUC).
The U.S. Energy Information Administration (EIA) classifies utilities into three ownership types: investor-owned utilities, publicly run or managed utilities, and cooperatives or co-ops.
Cooperatives, or co-ops, are not-for-profit, member-owned utilities. Co-ops are located in 47 states and serve electricity to an average of 24,500 customers each.
It depends on the state and the type of consumer you are (residential, commercial, or industrial). Some states have deregulated their electricity markets, allowing consumers to choose from multiple suppliers. In these states, utilities are still responsible for delivering and maintaining electricity infrastructure, but the supply of electricity is open to competition.
