Molly Ayala
The electrical company owns the infrastructure for electricity generation, transmission, and distribution. In some countries, the government owns and operates the entire electrical sector, while in others, it is privatized with investor-owned utility companies, city-owned or municipally-owned companies, or cooperative companies owned by their customers. The electric power industry is typically divided into four processes: generation, transmission, distribution, and retailing. The nature of the market and its regulation will determine the level of involvement and ownership of electric companies.
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What You'll Learn
Investor-owned utilities
IOUs are publicly traded companies, which means they are incentivised to cut costs and increase profits. This can result in lower prices for customers and cheaper means of generating revenue. They are also required by law to operate independently from one another, meaning they cannot offer preferential services or pricing to other utilities, even if they own stock in them. This reduces the risk of collusion and allows each utility to develop services independently.
IOUs can experiment with new energy generation methods and services without focusing on the same efficiency as other companies. They benefit from the expertise of their board members and senior management, which can streamline their planning, development, and deployment of cost-saving strategies. This makes it easier to achieve high efficiency levels, even with their size and scale. They can also provide tailored and innovative solutions that meet the needs of their customers.
An example of public pressure encouraging IOUs to become more sustainable is the move by Nevada voters to amend the state constitution, mandating Nevada's electricity providers to shift to at least 50% renewable energy by 2030. Communities can push their providers to use renewable energy sources to increase efficiency and avoid resource scarcity.
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Publicly-owned utilities
In the late 1800s and early 1900s, municipalities ran most utilities, and more than 3,000 existed by 1923. However, technological improvements in generation and transmission made smaller plants uneconomical, and many cities sold their equipment and transferred their customers to investor-owned utilities (IOUs). The Rural Electrification Act of 1936 was a federal loan program that provided electricity to rural populations, and farmer cooperatives began to form to bring electricity to communities not covered by IOUs or municipal utilities.
There is a constant debate about whether public or private ownership of electricity distribution utilities is better in terms of financial performance, service delivery, and quality. Some studies find that private electricity distribution companies perform better in terms of profitability, while others conclude that privatisation does not lead to efficiency gains. However, there is no consensus on the optimal utility ownership type, and many utilities have a mixed ownership structure between the public and private sectors.
In areas where the electricity sector has been restructured, utilities buy power from independent power producers that compete in the wholesale electricity market. Utilities then distribute the electric power to customers. Under the traditional utility model, customers had no choice about whom they bought electricity from—they were supplied by the utility in their service territory. However, in many states today, the "retail" part of the utility business has been opened up to competition from other companies.
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Cooperatives
Electric cooperatives (or co-ops) are private, nonprofit organisations owned and controlled by their members or customers. They are an alternative to commercial utility companies, and their primary purpose is to deliver electrical power to their members. Electric cooperatives are built by and belong to the communities they serve. They are led by members from the community and are well-suited to meet local needs.
There are two types of electric cooperatives: distribution cooperatives and generation and transmission (G&T) cooperatives. Distribution cooperatives serve end-users, such as residences and businesses, who are also their members. G&T cooperatives sell wholesale power to distribution cooperatives and are cooperative federations owned by their member co-ops. G&T cooperatives may generate power through their own electric generation facilities or by purchasing power on behalf of their members.
Electric cooperatives are governed by an elected board of directors or trustees, who are nominated and voted on by the entire membership. Members have equal status and influence and can participate in policymaking. Cooperatives are focused on the community and aim to provide the best service at the lowest possible cost. They are also committed to improving sustainability and supporting their communities through initiatives such as academic scholarships and aid for families in need.
Electric cooperatives were established in the 1930s and 1940s when investor-owned power companies refused to provide electricity to rural areas due to a lack of economic incentive. The Rural Electrification Administration (REA), created by President Roosevelt in 1935, authorised the construction of transmission lines to provide electricity to farms at reasonable rates. This initiative, along with the Rural Electrification Act of 1936, which established a lending program, enabled farmer-based electric cooperatives to form and secure loans, making rural electrification possible.
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Power stations
Energy Sources
Sizes and Capacity
The size of a power station can vary significantly, from large, centralised stations to smaller, distributed generators. The rated capacity of a power station refers to the maximum electrical power it can produce. Some power plants operate at or near their rated capacity constantly, while others may produce much less power due to intermittent energy sources or economic considerations. Peaking units, for example, are used to meet high electricity demand during peak hours but may remain idle for extended periods.
Operational Modes
Cooling Systems
Ownership and Regulation
The ownership and regulation of power stations vary across different regions. In some countries, the electric power industry is heavily regulated and government-owned, with companies owning the entire infrastructure, from generating stations to transmission and distribution networks. However, there has been a modern trend towards deregulation and the separation of the electricity transmission and distribution businesses. Additionally, the privatisation of power companies has faced criticism due to cost-cutting measures that have led to disastrous consequences in certain cases.
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Transmission and distribution infrastructure
The electrical grid is constantly balancing the supply and demand for energy, ensuring that power is delivered to millions of homes and businesses. Smart devices on transmission and distribution lines and at substations help to manage voltage levels and identify problems on the system, which can sometimes be corrected remotely. Smart appliances can also help to lower electricity bills by adjusting settings to take advantage of lower-priced electricity.
The construction of electricity infrastructure in the United States began in the early 1900s, driven by new transmission technologies, central-station generating plants, and growing electricity demand. Today, some of the older transmission and distribution lines must be replaced or upgraded to maintain the system's reliability and integrate new renewable energy sources.
Several companies own and operate transmission and distribution infrastructure in the United States and Canada. For example, AEP Texas, a subsidiary of American Electric Power, delivers electric services to customers in South and West Texas, while EPCOR Canada provides electricity transmission and distribution services to customers in Alberta and Ontario.
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Frequently asked questions
In the US, electrical companies can be investor-owned, publicly owned, or cooperative. Investor-owned utilities (IOUs) served 72% of US electricity customers in 2017. Publicly owned utilities (POUs) are run by government entities or political subdivisions, and cooperatives (co-ops) are not-for-profit member-owned utilities. The nature and state of the electricity market reform determine whether electric companies own the entire infrastructure or just parts of it.
The electric power industry is commonly split into four processes: electricity generation, transmission, distribution, and retailing. In many countries, electric power companies own the whole infrastructure, including generating stations, transmission infrastructure, and distribution infrastructure. However, since the 1990s, there has been a growing trend towards deregulation and separation of the electricity transmission and distribution businesses.
In the US, the Federal Energy Regulatory Commission (FERC) has endorsed the concept of appointing independent system operators (ISOs) to manage the electric power grid. The intention is to have all companies owning interstate electric transmission lines place those facilities under the control of a regional transmission organization (RTO).
Electric companies can own power plants or generating stations as part of their infrastructure. However, it depends on the market structure and reform whether they are involved in just some processes or own the entire infrastructure.
