Know Your Electric Utility Company: Regulations, Operations, and More

In most parts of the United States, regulated electric utility companies operate with a broad mandate to generate and deliver affordable electricity to residents in a clearly defined region. For commercial businesses with substantial energy demands, understanding how regulated utility companies work is an important part of improving energy efficiency on-site. 

Regulated vs. Deregulated Electricity Markets

Not all energy customers access electricity the same way. While the lines and outlooks look the same on the consumer side, there are fundamental differences in how regulated and deregulated electricity markets operate in the US. 

What Are Regulated Utility Companies?

The federal or state government grants regulated utility companies offering electricity or natural gas monopolies. They are responsible for generating, transmitting, and distributing electricity to residential and commercial customers within a specific geographic area and at specific prices. 

How Are Utility Companies Regulated?

The approved companies are regulated by state Public Utility Commissions, or PUCs. The PUC is responsible for utility company oversight, which includes:

• Setting rates

• Approving investments (such as opening new plants)

• Ensuring reliability and safety

Utility companies in regulated markets hold a monopoly on energy services in the region. They own the infrastructure and are responsible for maintenance and, when necessary, replacing out-of-date plants and repairing issues across transmission lines and end-use distribution. Utilities are also responsible for:

• Customer service

• Billing

• Outage response

• Energy efficiency programs and local rebates

States with primarily regulated electricity markets are found in the Southeast, Northwest, and many parts of the West Coast (except California). Michigan is a regulated electricity market, though there are some services in certain parts of the state that have inched closer to deregulation. 

What Are Deregulated Utility Companies?

In deregulated electricity markets, the vertically integrated infrastructure and related services are “unbundled”, leaving different entities responsible for different elements of the supply chain. Independent power plants (IPPs) are owned by private companies that sell into the wholesale market. The local monopoly (which is regulated) owns and maintains transmission and distribution infrastructure. Finally, customers receive bills from their electricity supplier of choice, or retail energy provider (REPs). The REPs buy electricity from the wholesale market and sell it to consumers (including commercial customers). Consumers receive a bill that often includes charges from the local utility and the REP for delivery and supply, respectively. 

What Are The Advantages of Deregulated Electricity Markets?

Deregulation advocates argue that competition in generation and supply helps lower electricity prices by introducing customer choice. They believe it allows consumers to make decisions based on how energy is generated (potentially rewarding power plants that run on solar or wind instead of natural gas) or lower prices. These markets have historically experienced increased market volatility and complexity, forcing consumers to research and compare offers and understand contract terms. 

States with primarily deregulated electricity markets include Texas, most of California, and many states in the Northeast, including New York, Pennsylvania, and Massachusetts. 

Read More: Commercial Solar Power Purchase Agreements

Putting a Number on “Utility Scale”

Regulated and deregulated utilities serve millions of people and invest billions to meet the US’s growing energy needs. 

Some of the biggest electric utility companies in the US operated across state lines to power homes and businesses at “utility scale”, or the scale of generation, supply, and distribution required to meet the needs of local and regional utilities. 

Largest Electric Utility Companies, by Customer Count

• Southern Company serves 9 million customers in six states (including natural gas).

• Duke Energy has over 8 million customers in several states. 

• NextEra, including its subsidiary Florida Power & Light, has roughly 5 million customers and is the largest utility in the country by market capitalization. 

• Pacific Gas & Electric (PG&E) has 5 million customers in California; you probably recognize the name for all the wrong reasons. 

The biggest electric utility companies in Michigan are:

• DTE Energy, which operates mostly in southeastern Michigan, has 2.3 million customers.

• Consumers Energy has 1.8 million customers in 62 counties in Michigan. It also operates most of the natural gas supply chain throughout the state. 

Combined, DTE Energy and Consumers Energy serve roughly 80% of Michigan’s rate-paying customers. 

Alternative Electricity and Power Suppliers

Like many other states, Michigan has several electric cooperatives. Great Lakes Energy Cooperative, a fixture in northern Michigan, is the perfect example of a member-owned and governed non-profit. Compared to investor-owned utilities (IOUs), electric co-ops are service-oriented and managed by their membership. Members (which includes its customers) have voting powers and are obligated to pay any excess revenues back to the cooperative through investment or capital credits. Cooperatives have their roots in serving rural communities during the Great Depression, when a lack of investment pushed many small towns to create co-ops on the heels of the Rural Electrification Act of 1936. 

Today, regulated, deregulated, and electric utility cooperatives provide energy while balancing the interests of local populations, communities, the environment, and stakeholders. Understanding how your business is powered will help you understand why and when pricing changes, how changing rates impact growth, and the value of investing in your facility’s energy efficiency and on-site power generation. 

Knowledge Is Power

At Keen Technical Solutions, it’s all about energy. In addition to in-depth energy auditing and efficiency services, we help business owners understand how systemic operations impact their bottom line. Take control of your energy demands with help from Northern Michigan’s most trusted energy consultant team. Get in touch to schedule a conversation today.