Must-know: The structure of the electric utility industry

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Sep. 10 2014, Updated 9:00 a.m. ET

Industry structure

The U.S. electric industry includes over 3,000 public, private, and cooperative utilities. It also includes more than 1,000 independent power generators, three regional synchronized power grids, eight electric reliability councils, ~150 control-area operators, and thousands of separate engineering, economic, environmental, and land-use regulatory authorities.

In this part of the series, we’ll discuss a broad classification of these utilities.

Investor-owned utilities 

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Investor-owned utilities (or IOUs) are private companies. They’re subject to state regulation. IOUs are financed by a combination of shareholder equity and bondholder debt. Most IOUs are large. Many of them have multi-fuel—electricity and natural gas—generation and multi-state operations. Duke Energy (DUK), Exelon Corporation (EXC), and Dominion resources (D) are some of the largest IOUs in U.S.

Publicly-owned utilities

Publicly-owned utilities (or POUs) are government or municipally-owned utilities. Publicly-owned utilities are generally exempt from regulation by state regulatory commissions. It’s assumed that POUs keep customers’ interests in mind when they set rates and service standards.

Cooperative utilities

Cooperative utilities are owned by the customers. They’re regulated by the board of directors. The board consists of ten elected individuals. Cooperative utilities are usually formed in rural parts of the country where the customer base is low.

Federal power agencies

Federal power agencies consist of four power marketing agencies (or PMAs). PMAs market wholesale power. They usually play a role in transmission and electric power systems. Some agencies also own power plants.

Power marketers

Hundreds of companies are registered as wholesale power suppliers. They don’t own power plants. Instead, they buy power from multiple suppliers on a long-term or spot-market basis and then resell it. Brokers arrange transactions, but never actually take ownership of the electricity.

Independent power producers 

Independent power producers (or IPPs) generate electricity from their own power plants, but don’t provide retail service. An IPP may sell its power through brokers. It sells its power to utilities or marketers. An IPP can also sell its power directly to consumers. IPPs operate in the unregulated power generation space. They sell power at market prices. NRG Energy (NRG) runs the largest IPP in U.S. NRG has a weight of 1.9% in the Utilities Select Sector SPDR (XLU).

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