Differences Between Publicly and Investor-Owned Utilities

Investor-owned utilities (IOUs) are private electricity and natural gas providers. California Public Utilities Commission (CPUC) oversees IOUs. Pacific Gas and Electric, San Diego Gas and Electric, and Southern California Edison comprise approximately three quarters of electricity supply in California.

Publicly owned utilities (POUs) are subject to local public control and regulation. POUs are organized in various forms including municipal districts, city departments, irrigation districts, or rural cooperatives. Municipal districts may include territories outside city limits or may not even serve the entire city. Cooperatives are owned by the customers they serve usually in rural areas. There are more than 40 POUs in the state that account for approximately a quarter of electricity supply in California. Most POUs are smaller than IOUs in the electricity sales and the number of customer accounts.

The largest POU, Los Angeles Department of Water and Power (LADWP) provides services to 3.9 million customers. The smallest utilities have less than 400 customers. One-third of the POUs account for over 90 percent of POU electricity sales. Most of the POUs serve between 1,800 and 100,000 customers.

The table below summarizes differences between POUs and IOUs.

POU IOU

Ownership

A local government body and/or customers/members of the utility. Usually limited to the service area.

Shareholders or investors. Not limited to the service area.

Structure/ Management/ Regulation

Non-profit public entity managed by locally elected officials/ public employees.

Private company. Shareholder-elected board appoints management team of private sector employees. Regulated by California Public Utilities Commission (CPUC).

Rates Setting and Regulation

Customer rates are set by each utility's governing body-board or city council in a public forum.

Customer rates are set and regulated by CPUC through public process that includes some customer participation.

Mission/Goals

Optimize benefits for local customer owners usually in the form of lower energy rates.

Optimize return on investment for shareholders.

Financing

Public utilities have access to tax-free bonds and co-ops have access to low-interest loans usually at the local level.

Stockholders (investors), the sale of bonds and bank borrowing help finance the utility's operations.

Power Generation

Operate their own generation facilities or purchase power through contracts.

Purchase power through contracts and operate their own generation facilities. After the energy crisis, IOUs resumed electricity procurement in 2002 (Public Utility Code 454.5). Every two years, the CPUC holds a Long Term Procurement Plan (LTPP) proceeding to review and adopt the IOUs' ten-year procurement plans. The LTPP proceeding evaluates the utilities' need for new fossil-fired resources and establishes rules for rate recovery of procurement transactions.

Profit/Net Revenue

Rates are set to recover costs and earn additional return to maintain bond ratings and invest in new facilities.

Utility rates are set to recover costs and earn a reasonable return as profits for investors in return for the risk they bear for investing in new facilities.

Size/ heterogeneity

Although POUs dramatically differ in size and number of customers they serve, most are small or mid-sized with an exception of LADWP and SMUD.

Very large in size and number of customers. Complex, heterogeneous customer mix.