220.127.116.11 The Electric Power Industry
Virtually every household in America is connected to the electric utility grid. The industry serves approximately 130 million residential and 19 million commercial/industrial customers.17 Until recently, utilities generated (or purchased from an affiliate) almost all of the power needed to serve their customers; distributed that electricity over company-owned lines; and performed all related billing and customer service functions. They are therefore often described as “vertically integrated” entities: entities that combine the generation, transmission/distribution, and customer/billing functions in one company.
Electric companies have been subject to regulatory control because they have been considered to be natural monopolies that render a vital service to the public. They received exclusive franchises to operate within a specified territory and the opportunity to earn a reasonable return on invested capital, in exchange for having the obligation to serve all customers without discrimination. However, as of 2017, residential electricity customers in 13 states plus the District of Columbia have the option of purchasing electricity supply from an independent electricity marketer or supplier.18
The types of organizations that provide electricity to consumers fall into one of three broad categories: investor-owned utilities (IOUs), publicly owned utilities, and member-owned cooperatives.19 As of 2007, there were more than 3273 electric utilities in the United States—at least 210 IOUs, 2009 publicly owned utilities, and 883 rural electric cooperatives. (There are also nine federal marketing agencies that primarily sell at wholesale to other utilities but not to end-users, and that control approximately 11% of generating capacity.20)
The IOUs own 42% of generation and serve 71% of ultimate customers.21 IOUs also receive three-quarters of all of the electricity revenues paid by all customers. Publicly owned utilities (public power districts, state agencies, and municipal enterprises) constitute roughly two-thirds of the number of all electric utilities but control only 9% of the utility-owned generating capability and receive 13% of total annual electric revenues. Rural electric cooperatives have only 4% of the nation’s generation and capacity and obtain 10% of total electric revenues.22
The vast majority of electric utilities do not generate on their own and, instead, they purchase electricity at wholesale for distribution to their retail customers. More common now among publicly owned utilities, it will become increasingly true of investor-owned utilities, as well.
As policy changes of the last twenty years encouraged the development of non-utility generators, their numbers and the percentage that they own of the nation’s generating capacity have increased. From 3.5% of total generation in 1978, non-utilities grew to 38.8% of generation in 2011.23 This trend will accelerate as restructured utilities divest their generation capacity, often to non-utilities.
17 U.S. Energy Info. Admin., 2015 Electric Power Annual, Table 2.1, available at www.eia.gov.
18 Jurisdictions with residential “retail access” as of 2017 include Connecticut, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Texas.
19 See § 1.1.5, supra.
20 U.S. Energy Info. Admin., 2015 Electricity Power Annual, Table 2.1, available at www.eia.gov.
23 U.S. Energy Info. Admin., Forms E1A-861 and E1A-923 (for generation), Form E1A-860 (for capacity, including adjustments for joint ownership). See also Am. Pub. Power Ass’n, U.S. Electric Utility Industry Statistics, available at www.publicpower.org. These non-utility generators are not bound by the statutory and common-law duties that govern their regulated counterparts and are in large part operated just like any other private business.