Introduction
Electric utilities are a backbone component of our modern society, ensuring a steady supply of electricity to power our homes, businesses, and industries. But did you know that not all electric utility business models are the same? Let's look at three as each model has unique characteristics.
Investor-Owned Utilities (IOUs)
IOUs are perhaps the most common type of electric utility business model. These are companies that are publicly traded on stock exchanges. IOUs are driven by profit, aiming to provide returns to their shareholders while delivering reliable electricity to consumers. Some key features of IOUs include:
- Shareholders: IOUs have shareholders who invest in the company by purchasing its stock. These shareholders expect dividends and capital appreciation in return for their investment.
- Regulation: IOUs are typically subject to regulatory oversight by public utility commissions or similar regulatory bodies. These commissions determine the rates that IOUs can charge customers, ensuring a balance between profitability and affordability.
- Infrastructure Investment: IOUs invest in infrastructure development, maintenance, and upgrades to ensure reliable electricity delivery. They can have access to capital markets to fund these projects.
The larger IOUs in the US are primarily organized into holding companies or conglomerates. These companies typically own and operate multiple IOUs serving various regions across the country. Here are some of the larger IOUs:
- NextEra Energy, Inc.
- Exelon Corporation
- Dominion Energy:
- Southern Company:
- Duke Energy Corporation:
Cooperatives (Co-ops)
Co-ops are owned and operated by the customers they serve. The primary goal of co-ops is to provide affordable electricity to their members, rather than maximizing profits. Here's what sets co-ops apart:
- Member Ownership: Customers of a co-op become members by purchasing a share in the cooperative. Each member has an equal say in the cooperative's decisions, regardless of the amount of electricity they consume.
- Local Focus: Co-ops are often rooted in their communities and prioritize local needs. They strive to provide reliable electricity at cost-effective rates, promoting economic development in their service areas.
- Democratic Governance: Members elect a board of directors from within the co-op's membership. These directors make decisions on behalf of the members, ensuring that the co-op's actions align with its mission.
Like IOUs, co-op businesses own and operate multiple co-ops serving different regions that can span across multiple states. These businesses are called cooperatives and here are some of the larger ones:
- Touchstone Energy Cooperatives
- Pedernales Electric Cooperative
- Cooperative Energy
- Great River Energy
- Tri-State Generation and Transmission Association
Municipal Utilities
Municipal utilities, also known as public power utilities, are owned and operated by local governments or municipalities. The primary objective of municipal utilities is to provide electricity as a public service rather than generating profits. Key features of municipal utilities include:
- Local Control: Municipalities have direct control over the operation, rates, and policies of their utility. This allows for responsiveness to local needs and priorities.
- Community Benefits: Revenue generated by municipal utilities often stays within the community, supporting local services and initiatives. This can lead to increased reinvestment in infrastructure and other community projects.
- Political Accountability: Decisions related to municipal utilities are made by local officials who are accountable to the community. This can result in more transparent and community-oriented decision-making.
Here are a few of the larger municipal electric utilities:
- Los Angeles Department of Water and Power
- New York Power Authority
- San Antonio Public Service
- Sacramento Municipal Utility District
- Seattle City Light
Conclusion
Each of these business models all need to make a profit in order to operate. However, they have slightly different focuses. Understanding the different electric utility business models and those different focuses opens the door to understanding how to best incentivize these businesses to move away from fossil fuel generation to clean energy.
