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ELECTRIC POWER — AN OVERVIEW OF THE
INDUSTRY AND ITS IMPACT
he electric power industry plays a critical role in our society on
many levels. It advances the nation’s economic growth, it promotes
business development and expansion, it provides solid employment opportunities to American workers, it enhances the quality of
life for its users, and most importantly, it powers the world. It is a
robust industry that contributes to the progress and prosperity of
our nation.
The Nation’s Economic Growth Is
Closely Linked to Electricity.
The U.S. economy is highly dependent on affordable and reliable
electricity. America’s increasing electrification is evidenced in part
by the ongoing digital revolution. Analysts use a term called “intensity” to relate electricity use to the gross domestic product (GDP), the
nation’s gauge of economic health. Electricity intensity in our economy shows a very close relationship between electricity and the
general level of economic activity. Since 1960, the intensity of electricity use in the economy, measured by electricity consumption per
dollar of real GDP, has increased by more than 25 percent. In
220
Index 1973 = 100
200
Real GDP*
180
Electricity**
160
140
120
Total
Energy Use**
100
80
1973 1975
1980
1985
*Source: U.S. Dept. of Commerce, Bureau of Economic Analysis
1990
1995
1999
**Source: Energy Information Administration
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comparison, the overall intensity of energy use has decreased by
more than 40 percent over the same time period.
Historically, electricity demand has been sensitive to changes in
economic growth. Growth in electricity use has coincided with growth
in the GDP since the end of World War II. The tie between electricity
use and the economy is the product of many factors, including development of advanced electric technologies, environmental needs, population changes, and the declining price of electricity.
The Electric Power Industry Is
a $216 Billion-Plus Business Sector.
The electric power industry is a large business sector. In our
nation’s economy, it represents approximately 4 percent of the real
gross domestic product. In terms of revenue, it is one of the largest
industries in the country, surpassing other industries such as
telecommunications, airline, and gas. As a matter of fact, shareholder-owned electric utilities generate more revenue from their
electric activities alone than the telecommunications and gas
industries combined.
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Revenues from Sales to Ultimate Customers
250
Billions of Dollars
200
150
216+
164+
100
105+
89+
51+
50
0
Total Electric Domestic Utility Industry Shareholder-Owned Telecommunications Operations
Electric Activities Only*
Sources: EEI, FCC, DOT, EIA
Airlines
Natural
Gas
* In 1999, total operating revenue for the shareholder-owned electric
utility industry totaled $325.6 billion. This figure includes both diversified
and non-diversified utility activities. (Source: EEI Financial Review, 1999)
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As Competition Evolves, Electric Companies
Are Exploring New Opportunities.
Today electric companies are making strategic business choices
about their future roles not just in electric operations but in the overall energy business. Some companies are divesting their generation assets in areas they traditionally served and are acquiring
new generation elsewhere. Other companies are divesting generation altogether and are focusing only on transmission and distribution activities, becoming “wires” companies.
Many companies also are diversifying their operations into
non-traditional businesses such as telecommunications, cable,
Internet access, and home security systems. In 1999, diversified
activities accounted for 43 percent of total shareholder-owned electric company operating revenue. Revenue from diversified activities
increased by almost 29 percent from 1998. Diversification provides
opportunities for companies to develop new customer relationships
and to offer additional integrated energy services.
The strategic realignment of assets also is driving a significant
increase in mergers and acquisitions, including convergence mergers between electric and gas companies that will allow companies
to offer “one-stop” energy services to consumers. Since 1992, 88
mergers and acquisition transactions—involving over 70 shareholder-owned utilities—have been announced; 8 mergers were
announced in 2000. Sixty-six mergers have been completed since
1992. Mergers provide consumers with the benefits of greater efficiency and enable companies to become regional and national
energy suppliers.
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There Are Thousands of Electric Power
Suppliers Competing in Today’s Market,
and the Number Is Increasing.
The electric power industry in the U.S. is becoming increasingly
diverse and includes any entity producing, selling, or distributing
electricity. In today’s electricity markets, there are “traditional” electric utilities, such as shareholder-owned companies, electric cooperatives, and government-owned utilities. There are also many new
electricity suppliers that have emerged as competition advances
and that are vying to compete in wholesale and retail electricity
markets.
■ Shareholder-owned electric utilities are tax-paying businesses that are highly regulated and are financed by the sale of stocks
and bonds to the general public.
■ Cooperatively owned utilities are eligible for subsidized financing
from the Rural Utilities Service (part of the Department of Agriculture) and
are generally unregulated and exempt from paying federal income taxes.
■ Government-owned utilities – including municipal systems,
public power districts, state projects, and federal utilities – are selfregulating entities. Municipal utilities are owned by the municipality in which they operate and are
Federal Utilities
(12)
financed through municipal
State Projects
(22)
Public Power bonds. Federally owned utilities
Districts
Shareholder-
(68)
are involved in the generation
Owned Utilities
(217)
Power Marketers
and/or transmission of electrici(839)
ty, most of which is sold at
Cooperatives
(886)
wholesale prices to local
Municipal Systems
government-owned and
(Government-Owned)
(1,857)
cooperatively owned
Non-Utility Generators
utilities.
(6,004 units)
Sources: EEI, FERC, 2001 Directory of Electric Power Producers and Distributors (© McGraw Hill Energy), and EIA Inventory of Nonutility Electric Power Plants in the United States 1999 (November 2000)
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Non-utility producers and suppliers include cogenerators,
small power producers, independent power producers, merchant
generators, and power marketers. Many non-utility producers and
suppliers are new entrants into electricity markets and are large,
well-known international corporations. Others are among the
world’s largest oil and gas companies. For the most part, they are
not small “mom-and-pop” businesses. In 1999 alone, electricity generated from non-utility generators increased by 35 percent, accounting for 15 percent of the total electricity generated in the U.S.
Many of the new players in electricity markets are not subject
to the same regulations imposed on shareholder-owned utilities.
The growth of competition that benefits all consumers, however,
depends on the creation of a system where all electricity suppliers
are bound by the same set of rules.
■
Electricity Sales by Power Marketers
Are Expanding Rapidly.
Two of the newest players in the electric power industry are power
marketers and merchant generators. Power marketers act as independent middlemen that buy and sell electricity in the wholesale
Power Marketer Total Annual
Wholesale Sales
3000
2.7 billion
MWh
2500
(Million MWh)
2000
1500
1000
500
0
27 million MWh
1995
1996
1997
1998
1999
Source: Wholesale Power 2000, Platts, a Division of The McGraw-Hill Companies
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market at market prices. Most of this power is traded in the growing
commodity market for electricity, in which marketers hold the
largest share. In response to increased competition in the wholesale market, power marketer sales have grown dramatically.
Power marketer sales jumped from 27 million MWh in 1995 to 1.2
billion MWh in 1997. In 1999, that number increased to 2.7 billion
MWh.
Traditionally, power marketers have not owned electric generation, transmission, or distribution assets. In recent years, however,
a growing number of merchant generators have been formed to
own power plants and market their output. Many of these merchant generators are building new plants on a speculative basis or
have acquired utility-divested generation. Others own plants that
are no longer committed to utilities under long-term contract.
Nearly Three out of Four American Consumers Are
Served by Shareholder-Owned Electric Companies.
The shareholder-owned segment of the electric power industry
serves nearly 74 percent of American consumers. These utilities are
owned by millions of shareholders directly, or indirectly through
Ultimate Customers Served
14.6%
Government-owned
Electric Utilities
73.8% Shareholder-owned
Electric Companies
11.6%
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Source: EIA
Cooperatively-owned
Electric Utilities
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other investments such as retirement funds, life insurance policies,
or mutual funds. The rest of the nation’s consumers are served by
government-owned and cooperatively owned electric utilities.
The Majority of Customers Served by
Electric Companies Are Residential Users, Yet Large
Industrial Customers Consume Approximately
One-Third of the Electricity Sold.
Electric companies serve consumers in three major customer
groups: residential, commercial, and industrial.
Residential customers — those in individual homes and apartments — are the largest class of customers. Commercial customers
are the next largest class and include businesses such as stores,
hospitals, office buildings, hotels, supermarkets, and restaurants.
Industrial customers — factories, refineries, textile mills, and other
industrial plants — account for less than one percent of all customers, but consume approximately one-third of electricity sold.
Another classification (which accounts for less than one percent of
all customers served by electric utilities) includes railroads and
railways; federal, state, and local government customers; and street
and highway lighting.
Electric Company Customers by Class
Residential
87.7%
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Commercial
11.1%
Other
0.8%
Industrial
0.4%
Source: EEI Statistical Yearbook 2000
Electricity Sales to Total Ultimate Customers
Residential
35.2%
Industrial
31.5%
Commercial
30.0%
Other
3.3%
Source: EEI Statistical Yearbook 2000
Almost 400,000 People Are
Employed by Shareholder-Owned
Electric Companies.
Shareholder-owned utilities directly employ nearly 400,000
Americans, thus enhancing the economic health of thousands of
communities, and in some cases, acting as the primary source of
employment. They are also a source of revenue and employment
for other businesses in the community, as they depend on private
contractors for goods and services ranging from administration to
complex generating equipment.
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