Molly Ayala
Electric companies in the United States are classified into three types: investor-owned utilities (IOUs), publicly run or managed utilities, and cooperatives. IOUs are large electric distributors owned by shareholders and serve 72% of US electricity customers. Publicly owned utilities (POUs) are run by government entities or political subdivisions, while cooperatives are not-for-profit member-owned utilities. The ownership type of a utility can change over time due to mergers, changing jurisdiction boundaries, or market conditions.
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What You'll Learn
Investor-owned utilities (IOUs)
IOUs are similar to for-profit corporations and are publicly or privately owned by shareholders. Common IOUs include electricity, natural gas, water, and sewage companies. According to the U.S. Energy Information Administration (EIA), IOUs served about 72% of U.S. electricity customers in 2017, or approximately three out of every four utility customers. While there are fewer IOUs than publicly-owned utilities and cooperatives, IOUs tend to be larger. They are most prevalent in heavily populated areas on the East and West coasts of the United States. The two largest IOUs are in California: Pacific Gas and Electric, and the Southern California Edison Company.
IOUs have a monopolistic position in their industry, allowing them to set prices and control the market within their limited service areas. They are protected from competition by jurisdictional boundaries. While monopolies are generally considered illegal, IOUs are regulated by the government to prevent unfair market power and prioritize consumer interests. IOUs are required by law to operate independently of each other.
The main advantage of IOUs is their focus on profitability, which can drive innovation and competitiveness. They have a structure of incentives and oversight, with investors seeking the best returns. This encourages management to cut costs and increase profits, potentially resulting in lower prices and more efficient revenue generation. However, the primary challenge for IOUs is balancing shareholder interests with customer demands. As a result, IOUs have struggled to meet the growing demands for clean energy sources and remain heavily reliant on non-renewable energy sources, such as coal and natural gas.
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Publicly-owned utilities (POUs)
The largest POUs in the US are the Puerto Rico Electric Power Authority (PREPA), with 1.47 million customers, and the Los Angeles Department of Water and Power, with 1.43 million customers. These two POUs are good examples of the different types of POUs: PREPA is state-run, while the Los Angeles Department of Water and Power is a municipal utility.
POUs are just one type of utility ownership structure. The other two types are investor-owned utilities (IOUs) and cooperatives (co-ops). IOUs are large electric distributors that issue stock owned by shareholders. In 2017, IOUs served 72% of US electricity customers, despite there being fewer IOUs than POUs or co-ops. IOUs tend to be very large and most prevalent in heavily populated areas on the East and West coasts.
Co-ops are not-for-profit, member-owned utilities. They are located in 47 states but are most prevalent in the Midwest, Southeast, and rural areas. The United States has 812 co-ops, with an average of 24,500 electricity customers each.
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Cooperatives (co-ops)
Electric cooperatives, or co-ops, are private, nonprofit organizations owned and controlled by their customers or members. They are an alternative to commercial utility companies, governed by an elected board of directors. Members of co-ops are also the owners, and they have equal status and influence, participating in policymaking and working together to improve sustainability and the good of their community.
Co-ops emerged to meet the needs that for-profit power companies were not filling, particularly in rural communities that investor-owned utility companies neglected. In the United States, electric co-ops were established through the Rural Electrification Administration (REA), which was set up by President Roosevelt in 1935 and passed the Rural Electrification Act in 1936. This initiative provided loans to farmer-based electric cooperatives, making rural electrification a reality. The REA also drafted the Electric Cooperative Corporation Act in 1937, enabling states to form and operate not-for-profit, consumer-owned electric cooperatives.
There are two main 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 own and operate power generation facilities and transmission lines, selling wholesale power to distribution cooperatives. G&T cooperatives are cooperative federations owned by their member cooperatives.
Co-ops provide renewable energy projects to rural communities, offering benefits such as new tax revenue, direct payments to landowners, and job creation in small towns and rural areas. They deliver affordable, clean, and renewable power to homes and small businesses. Co-ops are leading the way in reducing carbon emissions and transitioning to a more electrified economy. They have also been shown to have higher customer satisfaction than investor-owned utilities.
Examples of electric cooperatives include the National Electric Cooperative Association in the United States, Co-operative Energy in the United Kingdom, and Enercoop in France.
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Public power utilities
Public power infrastructure projects are often funded through tax-exempt municipal bonds, allowing community members to invest in their electricity infrastructure. This includes funding for new generation equipment, transmission lines, and distribution system upgrades. Public power generates about 10% of all electricity in the US.
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Municipalization
In the United States, electric power utilities are classified into three types based on ownership: investor-owned utilities (IOUs), publicly run or managed utilities, and cooperatives. While there are fewer IOUs than the other two types, they tend to be very large and serve three out of every four utility customers nationwide. IOUs are most prevalent in heavily populated areas on the East and West coasts, with the two largest IOUs being in California: Pacific Gas and Electric and the Southern California Edison Company.
Publicly owned utilities (POUs) include federal, state, and municipal-run utilities, as well as those run by political subdivisions, also known as public utility districts, which operate independently of city or country government. POUs tend to be smaller in scale, with an average of 12,100 electricity customers each. The largest POUs are the Puerto Rico Electric Power Authority (PREPA) and the Los Angeles Department of Water and Power.
Cooperatives, or co-ops, are not-for-profit member-owned utilities that are typically located in rural areas and small towns. Farmer cooperatives began forming in the 1930s to bring electricity to communities not covered by IOUs or municipal utilities, and today, co-ops are most prevalent in the Midwest, Southeast, and rural areas.
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Frequently asked questions
Private electric companies in the US are investor-owned utilities, or IOUs. They are owned by shareholders and are large electric distributors.
In 2017, investor-owned utilities served 72% of US electricity customers.
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.
There are also publicly-owned utilities, or POUs, which are owned by the community and run as a division of local government. Cooperatives, or co-ops, are not-for-profit member-owned utilities.
