As it turns out, investor-owned utilities are allowed to earn a profit on the distribution infrastructure they build. If a utility builds power lines and other infrastructure, they get to install the equipment, charge ratepayers for it, and tack a bit of profit onto the construction.
Unfortunately, and not unlike the original utility model described at the beginning of this post, this approach to compensating utilities can drive them to do things that are in their best interest but not necessarily in the best interest of ratepayers or the environment. It matters because it explains why most investor-owned utilities resist distributed solar and, in fact, fight tooth and nail to deter solar growth.
So, back to the massive, centrally located electricity generation facilities I mentioned before. Unlike those, solar electricity generation systems are smaller and spread out, and usually located right where the electricity is needed, like your home. Because solar is built right where the electricity is used, or at least closer to those areas, it means less distribution infrastructure is needed.
And that makes their investors unhappy. Seems that the article only refers to Private for profit utilities. It does not specifically address Public utilities or Private non-profit utilities. I would like to understand the public utility business model better. Is there a similar article available that does focus on public utilities? The NW public utilities have mostly been able to rely on hydro, since they have preferred access. In most of the rest of the country, muni and coop utilities have been quite recalcitrant about giving up their coal plants.
Mostly, IOUs worry about whether they will be able to recover the remaining undepreciated investment in their worthless power plants. In some states, they get away with running the plants to maintain their ability to bill customers, even though the customers would be better off paying the remaining investment and paying for new renewables and storage, rather than continuing to pay for running the loser fossil plants.
In the Northeast, the generators have been spun off and subjected to market forces, resulting in most of the coal retiring. Please keep it civil and constructive. Our editors reserve the right to monitor inappropriate comments and personal attacks. Give today to upgrade our democracy, advance housing affordability, and fight fossil fuels.
Advanced Filter. Alaska British Columbia Oregon Washington. Author: Laura Feinstein and Eric de Place. Revenue requirement—a disincentive to innovate The revenue requirement is the key outcome of a rate case. Using less energy can raise rates and penalize low-income consumers. Laura Feinstein Laura Feinstein focuses on energy policy, particularly natural gas infrastructure and energy decarbonization. She recently researched and wrote about innovative approaches to limiting natural gas pipeline expansion.
A budding journalist in her youth, Feinstein is excited to dust off the cobwebs and write again on meaningful topics. Before joining Sightline, Feinstein worked as an engineer for Puget Sound Energy, modernizing the regional energy grid. A Seattlite for over 20 years, she enjoys many of the outdoor pursuits that the region has to offer: hiking, bicycling, skiing and drought-tolerant gardening. Email Laura. Known as a leading expert on coal, oil, and gas export plans in the Pacific Northwest, he is considered an authority on a range of issues connected to fossil fuel transport, including carbon emissions, local pollution, transportation system impacts, rail policy, and economics.
He has researched and published more than four hundred articles, reports, and analyses on these proposals, and his work on fossil fuel transport has been cited by regional and national news media outlets more than a thousand times. His expertise makes him a highly sought-after expert in the field providing him with the opportunity to support allied groups, as well as educate media, elected officials, and the broader public on critical issues affecting our region.
Eric is a talented speaker, presenter, and media spokesperson. Before coming to Sightline, he worked with the Northwest Area Foundation , developing strategies to alleviate poverty in rural communities. Find his latest research here , email him at eric [at] sightline [dot] org. This means that private companies make sure we have the energy that we need.
It also means that customers can choose which companies supply their energy. Most electricity is generated at large power stations connected to the national transmission network. However, electricity can also be generated in smaller scale power stations which are connected to the regional distribution networks.
The number and type of power station built is the decision of each individual company based on market signals and government policy on issues such as the environment. There are many companies in the electricity generation sector, from large multinationals to small, family-owned businesses running a single site.
Similarly, huge companies have to pay heavy taxes that they recover from their customers by increasing their energy charges. Due to these internal variations, Ofgem compiles and presents the profit of businesses before interest and tax. Comparison charts based on such data are not accurate as they only provide a profit estimate. In case, the Big Six excessively increase their prices, the government has to step in to bring them down.
For instance, in , EDF earned most of its profit through energy production. Similarly, British Gas made the biggest profit in energy supply in Hence, any policy reducing the cost of energy supply would have positively affected its business.
During this pandemic, a lot of businesses faced losses, and dozen of them had to shut down. For these reasons, they failed to pay their energy bills. However, the energy suppliers had to recover their cost, which led to increasing their charges for the businesses that were paying bills.
Since , Ofgem has required all the big energy companies to create an annual report called Consolidated Segmental Statements or CSS.
These reports include the cost, profit, and revenue of all businesses in generation and supply segments. Every business must publish its CSS within four months after the end of its financial year.
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