Energy Policy

Utilities - Public Entities vs. Privatization


It is important to understand the framework through which our utilities are delivered to us. We flip a switch and lights go on, but who makes that happen? How do they produce that power? How far is it from my house or office? In order to understand almost any facet of energy policy, you need to have a good understanding of how the public and private natural gas and electric utilities work in the United States.

Required Reading

The EIA website provides an excellent and thorough overview of electricity generation in the United States. Rather than reinvent the wheel, I'll direct you to read that. (Pay special attention to the short paragraph on environmental aspects it has some useful information about the emissions profile of the US utility sector.)

Some important concepts to understand as you read through this material:

  • FERC is the Federal Energy Regulatory Commission, and you'll see them referenced throughout the summary. They are responsible for the oversight of all interstate transmission of oil, gas, and electricity. While they are not involved with regulation of retail gas and electricity to consumers, they do perform a number of functions related to interstate activities and other licensing and siting concerns. The Energy Policy Act of 2005 expanded FERC's responsibilities considerably. The FERC website provides a plethora of information about their initiatives and priorities.
  • Deregulation - This might be a concept you've heard about in the news, as many states have gone or are going through this process. Deregulation is the process by which utility companies move away from the traditional practice of a monopoly on all aspects of the the providing electricity to end users, including power generation, transmission, and distribution (all at cost-based rates) to a more competitive supply marketplace characterized by separate owners of generation facilities. This enables customers to choose their electricity supplier based on the best price (or for those more environmentally-minded consumers, the best mix of fuel sources). Utilities remain a regulated monopoly after deregulation, as they retain monopoly control over their utility territory. In short, deregulation results in utilities giving up generation and transmission but keeping distribution. (Here is a short explanation of transmission vs. distribution, if you are so inclined.)
  • Interesting note: 2007 was the first year that renewables were responsible for a majority of the new capacity added (excluding hydroelectric) - a good indication that we're moving in the right direction and diversifying our energy sources!