Electric Utilities
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An electric utility is a company in the
electric power industry The electric power industry covers the generation, transmission, distribution and sale of electric power to the general public and industry. The commodity sold is actually energy, not power, e.g. consumers pay for kilowatt-hours, power multipli ...
(often a
public utility A public utility company (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and r ...
) that engages in
electricity generation Electricity generation is the process of generating electric power from sources of primary energy. For electric utility, utilities in the electric power industry, it is the stage prior to its Electricity delivery, delivery (Electric power transmi ...
and distribution of electricity for sale generally in a
regulated market A regulated market (RM) or coordinated market is an idealized system where the government or other organizations oversee the market, control the forces of supply and demand, and to some extent regulate the market actions. This can include tasks ...
. The electrical utility industry is a major provider of energy in most countries. Electric utilities include investor owned, publicly owned,
cooperatives A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-control ...
, and
nationalized Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to p ...
entities. They may be engaged in all or only some aspects of the industry.
Electricity market In a broad sense, an electricity market is a system that facilitates the exchange of electricity-related goods and services. During more than a century of evolution of the electric power industry, the economics of the electricity markets had un ...
s are also considered electric utilities—these entities buy and sell electricity, acting as brokers, but usually do not own or operate generation, transmission, or distribution facilities. Utilities are regulated by local and national authorities. Electric utilities are facing increasing demandsBy Candace Lombardi, CNET.
Utilities: Green tech good for planet, bad for business
” February 23, 2010.
including aging infrastructure, reliability, and regulation. In 2009, the French company EDF was the world's largest producer of electricity.


Organization


Power transactions

An
electric Electricity is the set of physical phenomena associated with the presence and motion of matter that has a property of electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as described by ...
power system is a group of generation, transmission, distribution, communication, and other facilities that are physically connected. The flow of electricity within the system is maintained and controlled by dispatch centers which can buy and sell electricity based on system requirements.


Executive compensation

The
executive compensation Executive compensation is composed of both the financial compensation (executive pay) and other non-financial benefits received by an executive from their employing firm in return for their service. It is typically a mixture of fixed salary, varia ...
received by the executives in utility companies often receives the most scrutiny in the review of
operating expenses An operating expense, operating expenditure, operational expense, operational expenditure or opex is an ongoing cost for running a product, business, or system . Its counterpart, a capital expenditure (capex), is the cost of developing or provid ...
. Just as regulated utilities and their governing bodies struggle to maintain a balance between keeping consumer costs reasonable and being profitable enough to attract investors, they must also compete with private companies for talented executives and then be able to retain those executives. Regulated companies are less likely to use incentive-based
remuneration Remuneration is the pay or other financial compensation provided in exchange for an employee's ''services performed'' (not to be confused with giving (away), or donating, or the act of providing to). A number of complementary benefits in additio ...
in addition to base salaries. Executives in regulated electric utilities are less likely to be paid for their performance in bonuses or
stock options In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date ...
. They are less likely to approve compensation policies that include incentive-based pay. The compensation for electric utility executives will be the lowest in regulated utilities that have an unfavorable regulatory environment. These companies have more political constraints than those in a favorable regulatory environment and are less likely to have a positive response to requests for rate increases. Just as increased constraints from regulation drive compensation down for executives in electric utilities,
deregulation Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...
has been shown to increase remuneration. The need to encourage risk-taking behavior in seeking new investment opportunities while keeping costs under control requires deregulated companies to offer performance-based incentives to their executives. It has been found that increased compensation is also more likely to attract executives experienced in working in competitive environments. In the United States, the
Energy Policy Act of 1992 The Energy Policy Act of 1992, effective October 24, 1992, (102nd Congress H.R.776.ENR, abbreviated as EPACT92) is a United States government act. It was passed by Congress and set goals, created mandates, and amended utility laws to increase c ...
removed previous barriers to wholesale competition in the electric utility industry. Currently 24 states allow for deregulated electric utilities: Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Virginia, Arizona, Arkansas, California, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, New Mexico, New York, and Washington D.C. As electric utility monopolies have been increasingly broken up into deregulated businesses, executive compensation has risen; particularly incentive compensation.


Oversight

Oversight is typically carried out at the national level, however it varies depending on financial support and external influences. There is no existence of any influential international energy oversight organization. There does exist a World Energy Council, but its mission is mostly to advise and share new information. It does not hold any kind of legislative or executive power.


Alternative energy promotion

Alternative energy Renewable energy is energy that is collected from renewable resources that are naturally replenished on a Orders of magnitude (time), human timescale. It includes sources such as Solar power, sunlight, wind power, wind, the movement of Hydropo ...
has become more and more prevalent in recent times and as it is inherently independent of more traditional sources of energy, the market seems to have a very different structure. In the United States, to promote the production and development of alternative energies, there are many subsidies, rewards, and incentives that encourage companies to take up the challenge themselves. There is precedent for such a system working in countries like Nicaragua. In 2005, Nicaragua gave renewable energy companies tax and duty exemptions, which spurred a great deal of private investment. The success in Nicaragua may not be an easily replicated situation however. The movement was known as Energiewende and it is generally considered a failure for many reasons. A primary reason was the fact that it was improperly timed and was proposed during a period in which their energy economy was under more competition. Globally, the transition of electric utilities to renewables remains slow, hindered by concurrent continued investment in the expansion of fossil fuel capacity.


Nuclear energy

Nuclear energy may be classified as a green source depending on the country. Although there used to be much more privatization in this energy sector, after the 2011 Fukushima district nuclear power plant disaster in Japan, there has been a move away from nuclear energy itself, especially for privately owned nuclear power plants. The criticism being that privatization of companies tend to have the companies themselves cutting corners and costs for profits which has proven to be disastrous in the worst-case scenarios. This placed a strain on many other countries as many foreign governments felt pressured to close nuclear power plants in response to public concerns. Nuclear energy however still holds a major part in many communities around the world.


Customer expectations

Utilities have found that it isn't simple to meet the unique needs of individual customers, whether residential, corporate, industrial, government, military, or otherwise. Customers in the twenty-first century have new and urgent expectations that demand a transformation of the electric grid. They want a system that gives them new tools, better data to help manage energy usage, advanced protections against cyberattacks, and a system that minimizes outage times and quickens power restoration.


See also

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Consumer Advocate for Customers of Public Utilities Jon B. Wellinghoff (born May 30, 1949) is an American attorney who served as the chairman of the Federal Energy Regulatory Commission (FERC) from 2009 to 2013. The FERC is a U.S. government agency that regulates the interstate transmission of ele ...
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Electricity transmission Electric power transmission is the bulk movement of electrical energy from a generating site, such as a power plant, to an electrical substation. The interconnected lines that facilitate this movement form a ''transmission network''. This is d ...
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Rate Case Utility ratemaking is the formal regulatory process in the United States by which public utilities set the prices (more commonly known as "rates") they will charge consumers. Ratemaking, typically carried out through "rate cases" before a public u ...
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Rate base (energy) Rate base is the value of property on which a public utility is permitted to earn a specified rate of return, in accordance with rules set by a regulatory agency. In general, the rate base consists of the value of property as used by the utility in ...


References

{{Authority control Electric power Public utilities Economics of transport and utility industries