Otis Singleton
The electric company that serves a particular area is dependent on a variety of factors. In the United States, there are publicly owned utilities (POUs) and investor-owned utilities (IOUs). POUs include federal, state, and municipal-run utilities, while IOUs served 72% of U.S. electricity customers in 2017. The largest POU is the state-run Puerto Rico Electric Power Authority (PREPA), while the largest IOUs are in California: Pacific Gas and Electric, and Southern California Edison Company. In addition to these, cooperatives or co-ops are not-for-profit member-owned utilities that are most prevalent in rural areas.
| Characteristics | Values |
|---|---|
| Investor-owned utilities (IOUs) served % of U.S. electricity customers in 2017 | 72% |
| Two largest IOUs | Pacific Gas and Electric, Southern California Edison Company |
| Publicly owned utilities (POUs) include | Federal, state, and municipal-run utilities |
| POUs run by political subdivisions | Public utility districts |
| Number of POUs in the U.S. | 1,958 |
| Average number of electricity customers for each POU | 12,100 |
| Largest POUs | Puerto Rico Electric Power Authority (PREPA), Los Angeles Department of Water and Power |
| Cooperatives or co-ops | Not-for-profit, member-owned utilities |
| Number of states with co-ops | 47 |
| Areas with most co-ops | Midwest, Southeast, rural areas |
| Federal loan program that provided electricity to rural populations | The Rural Electrification Act of 1936 |
| Electric company in New Castle | Municipal Services Commission of the City of New Castle |
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What You'll Learn
Publicly owned utilities (POUs)
Publicly-owned utilities (POUs) are federal-, state-, and municipal-run utilities. They are owned by government entities, or by political subdivisions, also called public utility districts. These are utilities that residents vote for, which operate independently of city or country government. In the US, there are 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. They are located in 47 states, but are most prevalent in the Midwest and Southeast. The US has 812 co-ops, with an average of 24,500 electricity customers each. The largest co-op is the Pedernales Electric Co-op, in Johnson City, Texas, with 333,809 customers.
In 2017, there were almost 3,000 electric distribution companies, or utilities, operating in the US. The US Energy Information Administration (EIA) classifies utilities into three ownership types: investor-owned utilities, publicly run or managed utilities, and cooperatives. While there are fewer investor-owned utilities than the other two types, they tend to be very large. Almost three-quarters of utility customers get their electricity from these companies, which are most prevalent in heavily populated areas on the East and West coasts.
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 have a generator. This modern electricity distribution method spread to other city centres and densely populated areas. In smaller cities and towns, local governments 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.
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Investor-owned utilities (IOUs)
An investor-owned utility (IOU) is a for-profit corporation that provides utility services. IOUs are typically privately run and own their infrastructure and equipment. They serve their customers under a regulated rate schedule, which is reviewed by the government to determine whether the prices are fair and reasonable. IOUs are protected from competition by jurisdictional boundaries, limiting their influence on the market.
According to the U.S. Energy Information Administration (EIA), IOUs served 72% of U.S. electricity customers in 2017. IOUs tend to be larger than publicly owned utilities and cooperatives, serving three out of four utility customers in the country. They have a monopolistic position in the industry, allowing them to set prices and control the market.
The main advantage of IOUs is their focus on profitability, which can drive the research, implementation, and management of new technologies to remain competitive. However, this focus on profits has made it challenging for IOUs to meet demands for clean energy sources. Most IOU management prioritises stockholders' interests, leading to a reluctance to invest in renewables due to additional costs.
IOUs differ from government-owned or cooperative power utilities, which focus on service and community involvement. Cooperatives, or co-ops, are not-for-profit member-owned utilities that are prevalent in rural areas. In contrast, IOUs are more efficient due to their structure of incentives and oversight, encouraging management to cut costs and increase profits, potentially resulting in lower prices for customers.
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Cooperatives or co-ops
Cooperatives, or co-ops, are private, nonprofit organisations owned by their members or customers. They are an alternative to commercial utility companies and are governed by an elected board of directors. Unlike investor-owned utilities, which are for-profit enterprises, cooperatives function as nonprofits and run on a cost-of-service basis. Any profits left over in a cooperative are invested in infrastructure or paid out as dividends to members.
Cooperative members are nominated to positions and voted on annually by the entire membership. Members have equal status and influence and participate in policymaking, working together to improve sustainability and the good of their community.
There are two types of electric cooperatives: distribution cooperatives and generation and transmission (G&T) cooperatives. Distribution cooperatives deliver electricity to end-users, such as residences and businesses, who make up their membership. G&T cooperatives sell wholesale power to distribution cooperatives and are owned by their member cooperatives.
Electric cooperatives are prevalent in the United States, particularly in rural areas, where they were created by the New Deal to bring electric power and telephone service to underserved communities. Cooperatives are well-suited to meet local needs and keep rates affordable for their members. In 2022, electric cooperatives delivered 4.8% more electricity than in the previous year, and they serve 42 million people, including 92% of persistent poverty counties.
Examples of large electric cooperatives in the United States include the Pedernales Electric Cooperative in Texas and the Arkansas Electric Cooperative. Established energy cooperatives with national coverage include Co-operative Energy in the United Kingdom and Enercoop in France.
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Local government-owned utilities
In the United States, publicly owned utilities (POUs) include federal-, state-, and municipal-run utilities. POUs are one of three primary types of electric utilities in the country, the other two being investor-owned utilities and cooperatives.
POUs are also called public utility districts, and they are utilities that residents vote into existence, operating independently of city or country government. The United States has 1,958 POUs, with an average of 12,100 electricity customers each. The largest POU is the state-run Puerto Rico Electric Power Authority (PREPA), with 1.47 million customers, followed by the Los Angeles Department of Water and Power, a municipal utility with 1.43 million customers.
Public power utilities are community-owned, not-for-profit electric utilities that provide reliable, low-cost electricity to more than 55 million Americans. They are owned by the community and run as a division of the local government, governed by a local city council or an elected or appointed board. Citizens have a direct voice in utility decisions, including rates and sources of electricity. Public power utilities are embedded into the fabric of their communities and support a range of community programs, including charitable, educational, and beautification initiatives. They also pay 5.1% of electric operating revenues to the community—through taxes, fees, and special services—which is 9% more than private utilities.
Public power infrastructure projects are often funded through the issue of tax-exempt municipal bonds, meaning community members invest in their electricity infrastructure and receive interest as public power utilities pay back the loan.
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Renewable energy programs
In the United States, investor-owned utilities (IOUs) served 72% of electricity customers in 2017, while the remaining 28% were served by publicly owned utilities (POUs) or cooperatives (co-ops). POUs include federal, state, and municipal-run utilities, as well as public utility districts that operate independently of city or country governments. On the other hand, co-ops are not-for-profit, member-owned utilities that are prevalent in rural areas due to the formation of farmer cooperatives that brought electricity to communities not covered by IOUs or municipal utilities.
Various renewable energy programs have been established to promote the use of clean and renewable energy sources, reduce environmental impacts, and provide support for energy consumers, state policymakers, and energy providers. Here are some examples of such programs:
- The U.S. Environmental Protection Agency (EPA) has implemented several clean energy programs, including the Combined Heat and Power Partnership, which promotes the use of CHP to reduce the environmental impact of power generation. The Green Power Partnership encourages organizations to purchase green power to reduce the environmental impacts associated with purchased electricity use. The Landfill Methane Outreach Program focuses on reducing methane emissions from landfills by encouraging the recovery and use of landfill gas as a renewable energy resource.
- The RE-Powering America’s Land Initiative supports renewable energy development on current and formerly contaminated lands, landfills, and mine sites, providing resources and identifying the renewable energy potential of these sites.
- The WaterSense program, a partnership between the EPA and DOE, offers simple ways for people to use less water through water-efficient products, new homes, and services, helping to protect the nation's water supply.
- The Heat Island Reduction Program addresses the heat island effect by sharing information and mitigation strategies with communities to create cooler environments.
- The USDA Rural Development offers funding and assistance for renewable energy development, energy efficiency improvements, and the installation of renewable energy systems, such as solar panels and biorefineries. They also provide grants, loans, and payments for renewable energy financing.
- The Rural Energy Pilot Program (REPP) provides financial assistance to rural communities for renewable energy development and energy efficiency improvements, including guaranteed loan financing and grant funding for renewable energy systems.
- The U.S. Department of Energy (DOE) and other federal government agencies fund research and development for renewable energy technologies, collaborating with academic institutions and private companies.
- Net metering programs allow electric utility customers to install renewable energy systems on their properties and connect them to the electric utility's distribution grid. These programs vary by state, and customers are billed for their net electricity usage during a defined period.
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Frequently asked questions
In the United States, there are various types of electric companies, including investor-owned utilities (IOUs), publicly owned utilities (POUs), and cooperatives (co-ops). IOUs are privately owned and served around 72% of US electricity customers in 2017. POUs are government-owned and include federal, state, and municipal-run utilities. Co-ops are not-for-profit, member-owned utilities that are common in rural areas.
Some examples of investor-owned utilities in the US include Pacific Gas and Electric and Southern California Edison Company, which are the two largest IOUs in California.
Yes, in some areas, residents and businesses can generate their own electricity through local solar programs, such as the one offered by the Los Angeles Department of Water and Power (LADWP).
