The Electric Utililty Industry
Overview of the Electric Utility Industry
- The electric power industry is a combination of private, Federal, and public nonprofit organizations. The distribution of capacity, generation, revenue, and sales differs widely among ownership groups.
- Different ownership groups have different goals, organizational characteristics, and financing methods.
- The U.S. Government is one of the largest producers of electricity in the United States. Federal power cannot be generated for profit. The goal of all Federal power producers is to provide power at the lowest possible rate consistent with sound business principles, giving preference to public bodies and cooperatives in the sale of electricity.
- The electric utility industry is regulated at both the Federal and State levels. Economic regulation of IOUs (investor-owned utilities) is based on:
(a) The importance of reliable and economic electric power to the public interest. (b) The practice of granting exclusive franchise under the concept that electric utilities are natural monopolies.
- Regulation is used to limit IOUs' monopoly profits and encourage efficiency.
- Markets for electricity in the U.S. are undergoing fundamental changes with new customers and suppliers appearing, traditional regulatory structures changing, and a less centralized, competitive market emerging. The industry is evolving from utilities owning and operating every element of the business to three distinct businesses: power generation, power transmission, and distribution and retail customer service. The energy policy act of 1992 continues this trend of increasing competition in the industry. This, combined with increasing environmental concerns and mandates, indicates a rapidly changing future for the electric power industry.
- Generally, all electric utilities, regardless of ownership, are subject to Federal regulations concerning air, water quality, and the protection of wildlife. They must obtain Federal licenses for hydroelectric and nuclear generation facilities, and must comply with Federal laws requiring power exchanges with qualifying small power and cogeneration producers. However, Federal agencies are not required to obtain licenses to construct or operate hydroelectric facilities.
- The Bureau of Reclamation and the U.S. Army Corps of Engineers are the primary producers of Federal hydroelectric generation.