Umair Gaines
The United States' electric companies are classified into three ownership types: investor-owned utilities (IOUs), publicly run or managed utilities, and cooperatives. In 2017, almost 3000 electric distribution companies were operating in the US, with IOUs serving 72% of electricity customers despite making up less than 10% of electricity providers. The largest IOUs are Pacific Gas and Electric and the Southern California Edison Company, both in California. Publicly owned utilities (POUs) include federal, state, and municipal-run entities, while cooperatives are not-for-profit member-owned utilities located in 47 states.
| Characteristics | Values |
|---|---|
| Number of electric distribution companies operating in the US in 2017 | 3,000 |
| Types of utilities | Investor-owned, publicly run or managed, and cooperatives |
| Percentage of U.S. electricity customers served by investor-owned utilities in 2017 | 72% |
| Number of investor-owned utilities in 2017 | 168 |
| Average number of electric customers served by investor-owned utilities in 2017 | 654,600 |
| Largest investor-owned utilities | Pacific Gas and Electric, Southern California Edison Company |
| Number of publicly owned utilities | 1,958 |
| Average number of electricity customers served by publicly owned utilities | 12,100 |
| Largest publicly owned utilities | Puerto Rico Electric Power Authority (PREPA), Los Angeles Department of Water and Power |
| Number of states with cooperatives | 47 |
| Most prevalent regions for cooperatives | Midwest and Southeast |
| Largest U.S. electric utility companies | Calpine Corp, Entergy, NRG Energy, Duke Energy |
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What You'll Learn
Investor-owned utilities (IOUs)
The United States' electric power sector consists of three types of ownership: investor-owned utilities (IOUs), publicly-run or managed utilities, and cooperatives. IOUs are large electric distributors that issue stock owned by shareholders. Although they make up less than 10% of electricity providers, they tend to be very large and serve the most customers. In 2017, 72% of electricity customers in the US were served by IOUs, with 168 IOUs serving an average of 654,600 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 Southern California Edison Company, with 5.07 million customers.
Technological improvements in generation and transmission have made smaller plants uneconomical, leading many cities to sell their equipment and transfer their customers to IOUs. This trend has resulted in the consolidation of the electric power sector, with IOUs becoming increasingly dominant.
IOUs have been able to invest significant capital in expanding their infrastructure and improving their technology. They have also benefited from economies of scale, as their large customer base allows them to spread the cost of these investments across a wider population. This has made it challenging for smaller, publicly-owned utilities and cooperatives to compete.
Despite their large market share, IOUs have faced criticism for prioritizing profits over consumers and the environment. As for-profit enterprises, they have been accused of putting shareholder value ahead of the best interests of their customers and the public. This has led to debates about the appropriate role of the private sector in providing essential public services like electricity.
Overall, IOUs play a significant role in the US electric power sector, serving a large portion of the country's electricity customers. Their size and scale have advantages and disadvantages, and they continue to shape the landscape of the industry.
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Publicly-owned utilities (POUs)
The US Energy Information Administration (EIA) classifies utilities into three ownership types: investor-owned utilities, publicly run or managed utilities (or publicly-owned utilities), and cooperatives.
Public utilities receive state and federal oversight, but they are also overseen by their own community and ratepayers through the Board of Directors that the community elects to govern the utility. They also encourage public engagement and ensure that the decisions and direction of the utility are in line with the community's wants and needs. Many public utility employees often live in the community and are ratepayers as well. Affordability is at the core of POUs' identities. Being not-for-profit gives them the ability to prioritize ratepayers over shareholders. The majority of POUs in California have less expensive electric rates than IOUs.
Publicly-owned utilities are also called public utility districts or special districts, meaning they are local government agencies. Decisions about how the utility operates are made by the community. Public utility districts are utilities that residents vote into existence and operate independently of city or country government.
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Cooperatives (co-ops)
Cooperatives, or co-ops, are not-for-profit, member-owned utilities. Co-ops are present in 47 or 48 states, but are most common in the Midwest and Southeast. They serve 42 million people, including 92% of persistent poverty counties, and power over 22 million businesses, homes, schools, and farms.
Co-ops are owned and led by members of the communities they serve, and are designed to meet local needs. They are particularly prevalent in rural areas that have been deemed "unprofitable" by investors. For example, the BARC Electric Cooperative in rural Shenandoah Valley, Virginia, provides broadband services to the community, which larger companies do not offer in less populated areas.
Co-ops are well-regarded by their customers, with high customer satisfaction scores. In the 2023 J.D. Power Electric Utility Residential Customer Satisfaction Study, co-ops secured seven of the top ten spots and the highest average score among all electric utility providers.
Co-ops are also leading the way in cutting carbon footprints and adopting clean energy solutions. From 2005 to 2021 or 2022, co-ops reduced carbon dioxide emissions by 17%, sulfur dioxide by 82-83% (between 2005 and 2022), and nitrogen oxide by 68% (between 2005 and 2021 or 2022). They are increasingly incorporating renewable energy sources, such as wind farms and solar arrays, which now generate enough electricity to power over 3.5 million homes.
Co-ops have several advantages over investor-owned power suppliers. When a customer joins a co-op, they gain collective ownership in the organization and are eligible to share in any profits, which are typically distributed as capital credits to reduce the cost of power. As nonprofit entities, co-ops are able to focus on serving their members rather than returns for shareholders, allowing them to invest in service-related improvements and consumer education.
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Largest electric utility companies
The United States has a mix of investor-owned, publicly-owned, and cooperative electric utility companies. While there are nearly 3,000 electric distribution companies operating in the country, the market is dominated by investor-owned utilities, which served 72% of US electricity customers in 2017.
The largest investor-owned utilities are in California: Pacific Gas and Electric, with 5.48 million customers, and Southern California Edison Company, with 5.07 million customers. The largest publicly-owned utility is the Puerto Rico Electric Power Authority, with 1.47 million customers, and the largest cooperative utilities are located in the Midwest and Southeast.
As of June 2023, NextEra Energy was the leading electric utility in the US based on market value, at almost $153 billion. The Southern Company, based in Georgia, ranked second, with a market value of $82 billion. NextEra Energy is part of a new generation of energy companies investing heavily in renewable electricity capacity, challenging established energy companies in the oil sector.
Other large electric utility companies in the US include NRG Energy, which serves over 7 million retail customers in 24 states, and Duke Energy, which serves approximately 7.5 million customers in six states in the Southeast and Midwest. Calpine Corp has a fleet of 76 power plants in operation or under construction, serving customers in 22 states, Canada, and Mexico. Entergy owns and operates a large-scale clean power-generating fleet, including more than five gigawatts of carbon-free nuclear capacity.
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History of electric distribution in the US
The history of electric distribution in the US began in the late 1800s, with the first electric distribution utility, Pearl Street Station, built by Thomas Edison's Edison Illuminating Company. It began operating in Lower Manhattan, New York, in 1882, marking the start of modern electricity distribution in the nation. Before this, Americans who wanted electricity in their homes had to rely on generators.
The earliest electric distribution systems used direct current (DC) and were very inefficient, requiring electric generating stations to be close to the users, generally within a mile. This type of generation-transmission system was called a distributed generation system. As a result of this inefficiency, it was thought that the industry would develop into a system with large numbers of small generators located near their loads.
However, in the 1890s, significant developments and refinements were made to distribution systems, including the design of alternating-current (AC), high-voltage distribution transmission systems. This advancement allowed electric power to be transmitted over much longer distances than the previous DC system. In 1896, George Westinghouse, who had recognised the limitations of Edison's low-voltage system, built an 11,000-volt AC line to connect Niagara Falls to Buffalo, NY, a distance of 20 miles.
The AC "universal system" ultimately prevailed, allowing for the interconnection of generating stations and loads using different frequencies and enabling important economies of scale, lower capital investment, and increased efficiency. By the mid-1930s, however, only 10% of homes in rural America had electricity. Over time, 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).
Today, the electric transmission and distribution system in the US has evolved into a massive grid, with over 150,000 miles of high-voltage transmission lines linking generating facilities to load centres through interconnected transmission systems spanning states and borders. The US Energy Information Administration (EIA) classifies utilities into three ownership types: IOUs, publicly run or managed utilities (POUs), and cooperatives. In 2017, almost 3,000 electric distribution companies were operating in the US, with IOUs serving 72% of electricity customers despite being fewer in number than the other types of utilities.
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Frequently asked questions
No entity owns all the electric companies in the United States. According to the U.S. Energy Information Administration's (EIA) electric power sector survey data, there were almost 3,000 electric distribution companies operating in the U.S. in 2017.
The EIA classifies utilities into three ownership types: investor-owned utilities, publicly run or managed utilities, and cooperatives.
In 2021, investor-owned utilities represented less than 10% of electricity providers in the United States.
In 2017, investor-owned utilities served 72% of U.S. electricity customers. The two largest investor-owned utilities are in California: Pacific Gas and Electric, with 5.48 million customers, and Southern California Edison Company, with 5.07 million customers.
Some of the largest electric utility companies in the United States include Calpine Corp, NRG Energy, Duke Energy, and Entergy.
