Must-know: Why the electric utilities industry is important

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Sep. 9 2014, Updated 11:18 p.m. ET

Electric utilities industry

The U.S. is the second largest electricity producer in the world. China is the largest producer. The U.S. has an annual production of 4.06 billion gigawatt hours (or GWh). This is ~20% of the total world output, according to the U.S. Energy Information Administration (or EIA).

The industry is important for the economy because all businesses require electricity to operate. The EIA predicts that electricity demand in the U.S. will increase by 29% from 2012 to 2040. It will require more electricity to be generated. It will also require a significant investment in transmission lines, substations, meters, and other equipment and services that bring electricity into homes and businesses.

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The chart above shows that electricity generation uses up 39% of the total primary energy consumed in the U.S. This makes it the largest sector in terms of primary energy consumption. Primary energy sources are raw forms of energy that can be found in nature. Examples of raw energy include coal, gas, oil, wind, and water.

The electric utilities industry is a mature industry. It operates in a highly-regulated environment. Its policies are governed by the federal government and the states. Investors favor electric utility companies because they have stable dividends.

The largest electricity producers in the U.S.—by generation—are PPL Corporation (PPL), Duke Energy (DUK), American Electric Power Company (AEP), Southern Company (SO), and Exelon Corporation.

The Utilities Select Sector SPDR (XLU) invests in utility companies across the U.S. It includes all the previously listed companies under its top ten holdings.

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