Electric utility

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An electric utility, or a power company, is a company in the electric power industry (often a public utility) that engages in electricity generation and distribution of electricity for sale generally in a regulated market. [1] The electrical utility industry is a major provider of energy in most countries.

Contents

Electric utilities include investor owned, publicly owned, cooperatives, and nationalized entities. They may be engaged in all or only some aspects of the industry. Electricity markets 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 demands [2] including aging infrastructure, reliability, and regulation.

In 2009, the French company EDF was the world's largest producer of electricity. [3]

Organization

Power transactions

An electric power system is a group of generation, transmission, distribution, communication, and other facilities that are physically connected. [4] 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 received by the executives in utility companies often receives the most scrutiny in the review of operating expenses. 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. [5]

Regulated companies are less likely to use incentive-based remuneration in addition to base salaries. Executives in regulated electric utilities are less likely to be paid for their performance in bonuses or stock options. [5] They are less likely to approve compensation policies that include incentive-based pay. [5] 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. [6]

Just as increased constraints from regulation drive compensation down for executives in electric utilities, deregulation 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. [7]

In the United States, the Energy Policy Act of 1992 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. [8] As electric utility monopolies have been increasingly broken up into deregulated businesses, executive compensation has risen; particularly incentive compensation. [9]

Oversight

Oversight is typically carried out at the national level, however it varies depending on financial support and external influences. [10] 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. [11] It does not hold any kind of legislative or executive power.

Alternative energy promotion

Alternative energy 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. [12]

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. [13] A primary reason was 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. [14]

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.[ citation needed ] 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. [13] 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. [15]

See also

Related Research Articles

<span class="mw-page-title-main">Public utility</span> Entity which operates public service infrastructure

A public utility company is an organization that maintains the infrastructure for a public service. Public utilities are subject to forms of public control and regulation ranging from local community-based groups to statewide government monopolies.

Electricity retailing is the final sale of electricity from generation to the end-use consumer. This is the fourth major step in the electricity delivery process, which also includes generation, transmission and distribution.

An electricity market is a system that enables the exchange of electrical energy, through an electrical grid. Historically, electricity has been primarily sold by companies that operate electric generators, and purchased by consumers or electricity retailers.

The 2000–2001 California electricity crisis, also known as the Western U.S. energy crisis of 2000 and 2001, was a situation in which the U.S. state of California had a shortage of electricity supply caused by market manipulations and capped retail electricity prices. The state suffered from multiple large-scale blackouts, one of the state's largest energy companies collapsed, and the economic fall-out greatly harmed Governor Gray Davis's standing.

<span class="mw-page-title-main">Electric power industry</span> Industry that provides the production and delivery of electric energy

The electric power industry covers the generation, transmission, distribution and sale of electric power to the general public and industry. The commercial distribution of electric power started in 1882 when electricity was produced for electric lighting. In the 1880s and 1890s, growing economic and safety concerns lead to the regulation of the industry. What was once an expensive novelty limited to the most densely populated areas, reliable and economical electric power has become an essential aspect for normal operation of all elements of developed economies.

<span class="mw-page-title-main">Energy Policy Act of 1992</span>

The Energy Policy Act of 1992, effective October 24, 1992, is a United States government act. It was passed by Congress and set goals, created mandates, and amended utility laws to increase clean energy use and improve overall energy efficiency in the United States. The Act consists of twenty-seven titles detailing various measures designed to lessen the nation's dependence on imported energy, provide incentives for clean and renewable energy, and promote energy conservation in buildings.

<span class="mw-page-title-main">Public Utility Regulatory Policies Act</span> Part of the US federal law known as the National Energy Act

The Public Utility Regulatory Policies Act is a United States Act passed as part of the National Energy Act. It was meant to promote energy conservation and promote greater use of domestic energy and renewable energy. The law was created in response to the 1973 energy crisis, and one year in advance of a second energy crisis.

<span class="mw-page-title-main">Demand response</span> Techniques used to prevent power networks from being overwhelmed

Demand response is a change in the power consumption of an electric utility customer to better match the demand for power with the supply. Until the 21st century decrease in the cost of pumped storage and batteries, electric energy could not be easily stored, so utilities have traditionally matched demand and supply by throttling the production rate of their power plants, taking generating units on or off line, or importing power from other utilities. There are limits to what can be achieved on the supply side, because some generating units can take a long time to come up to full power, some units may be very expensive to operate, and demand can at times be greater than the capacity of all the available power plants put together. Demand response, a type of energy demand management, seeks to adjust in real-time the demand for power instead of adjusting the supply.

Electricity provider switching is the ability of power consumers to have an option to choose their electricity provider in a deregulated electricity market as permitted by a state public utilities governing body.

The Texas electricity market is deregulated, meaning that there is competition in the generation and distribution of electricity. Power generators in the Texas Interconnection, managed by the Electric Reliability Council of Texas, participate in an energy-only electricity market and are compensated only for the electricity they produce. The wholesale generation market was deregulated in 1995 and the distribution market in 1999, with Texas Senate Bill 7. This replaced the prior system in which power was generated and consumed locally by the same utility with one in which retail providers contracted with generators across the state.

<span class="mw-page-title-main">Community Choice Aggregation</span> Alternative energy supply system

Community Choice Aggregation (CCA), also known as Community Choice Energy, municipal aggregation, governmental aggregation, electricity aggregation, and community aggregation, is an alternative to the investor-owned utility energy supply system in which local entities in the United States aggregate the buying power of individual customers within a defined jurisdiction in order to secure alternative energy supply contracts. The CCA chooses the power generation source on behalf of the consumers.

The electricity sector in Argentina constitutes the third largest power market in Latin America. It relies mostly on thermal generation and hydropower generation (36%). The prevailing natural gas-fired thermal generation is at risk due to the uncertainty about future gas supply.

Maryland Electric Deregulation is the result of a Bill passed in 1999 by the Maryland General Assembly. This bill changed the entire face of the Maryland utility industry.

Brazil has the largest electricity sector in Latin America. Its capacity at the end of 2021 was 181,532 MW. The installed capacity grew from 11,000 MW in 1970 with an average yearly growth of 5.8% per year. Brazil has the largest capacity for water storage in the world, being dependent on hydroelectricity generation capacity, which meets over 60% of its electricity demand. The national grid runs at 60 Hz and is powered 83% from renewable sources. This dependence on hydropower makes Brazil vulnerable to power supply shortages in drought years, as was demonstrated by the 2001–2002 energy crisis.

Solar Renewable Energy Certificates (SRECs) or Solar Renewable Energy Credits, are a form of Renewable Energy Certificate or "green tag" existing in the United States of America. SRECs exist in states that have Renewable Portfolio Standard (RPS) legislation with specific requirements for solar energy, usually referred to as a "solar carve-out". The additional income received from selling SRECs increases the financial value of a solar investment and assists with the financing of solar technology. In conjunction with state and federal incentives, solar system owners can recover their investment in solar by selling their SRECs through spot market sales or long-term sales, both described below.

The United States has the second largest electricity sector in the world, with 4,178 Terawatt-hours of generation in 2023. In 2023 the industry earned $491b in revenue at an average price of $0.127/kWh.

The National Association of Regulatory Utility Commissioners (NARUC) is the national association representing the U.S. state public service commissioners who regulate essential utility services, including energy, telecommunications, and water. Founded in 1889, the Association is a resource for its members and the regulatory community, providing a venue to set and influence public policy, share best practices, and foster solutions to improve regulation.

Utility ratemaking is the formal regulatory process in the United States by which public utilities set the prices they will charge consumers. Ratemaking, typically carried out through "rate cases" before a public utilities commission, serves as one of the primary instruments of government regulation of public utilities.

<span class="mw-page-title-main">Reliant Energy</span> American energy company

Reliant Energy is an American energy company based in Houston, Texas. It serves the state of Texas.

Net metering in New Mexico is a set of state public policies that govern the relationship between solar customers and electric utility companies.

References

  1. ↑ "Electric". snavely-king.com. Snavely King Majoros & Associates. Retrieved 18 July 2014.
  2. ↑ By Candace Lombardi, CNET. “Utilities: Green tech good for planet, bad for business.” February 23, 2010.
  3. ↑ AFP (August 2010)
  4. ↑ "Electricity Basics" (PDF). science.smith.edu. Smith College. Retrieved 18 July 2014.
  5. 1 2 3 Joskow, Paul; Rose, Nancy; Wolfram, Catherine (1996). "Political Constraints on Executive Compensation: Evidence From the Electric Utility Industry" (PDF). RAND Journal of Economics. 27 (1): 165–182. JSTOR   2555797. S2CID   85508770.
  6. ↑ Bryan, Stephen; Hwang, Leeseok (1997). "CEO Compensation In A Regulatory Environment: An Analysis Of The Electric Utility Industry". Journal of Accounting, Auditing & Finance. 12 (3): 223–251. doi: 10.1177/0148558X9701200303 . S2CID   153498203.
  7. ↑ Bryan, Stephen; Lee-Seok, Hwang; Lilien, Steven (2005). "CEO Compensation After Deregulation: The Case Of Electric Utilities". Journal of Business. 78 (5): 1709–1752. doi:10.1086/431440.
  8. ↑ "Deregulated States". alliedpowerservices.com. Allied Power Services. Archived from the original on 10 May 2013. Retrieved 18 July 2014.
  9. ↑ Arya, Avinash; Sun, Huey-Lian (2004). "Impact of Deregulation in CEO Compensation: The Case of Electric Utilities". American Business Review. 22 (1): 27–33.
  10. ↑ Thomas, Steve. "Electricity liberalisation: The beginning of the end" (PDF). Retrieved December 3, 2016.
  11. ↑ "Mission". www.worldenergy.org. Retrieved 2016-12-09.
  12. ↑ "Nicaragua's latest revolution: Becoming a green energy powerhouse". mcclatchydc. Retrieved 2016-12-09.
  13. 1 2 "Renewable energy's global growing pains". Ars Technica. Retrieved 2016-12-09.
  14. ↑ Alova, G. (2020). "A global analysis of the progress and failure of electric utilities to adapt their portfolios of power-generation assets to the energy transition". Nature Energy. 5 (11): 920–927. Bibcode:2020NatEn...5..920A. doi:10.1038/s41560-020-00686-5. ISSN   2058-7546. S2CID   225179903.
  15. ↑ Riley, Kim (2018-03-08). "IEI event emphasizes efforts by utilities to serve diverse mix of customers". Daily Energy Insider. Retrieved 2018-03-16.
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