Utility Stats: Just How Fractured is the Industry?

Through my consultancy practice and in conferences and forums, there is a steady drumbeat of criticism of the utility industry, citing a miasma of territorial boundaries and the vagaries of fifty state regulatory bodies.

Let's look at just a few statistics, and then let me share a few thoughts on how best to plot your course with utility engagements, whether in the energy efficiency, demand response, or smart grid areas.

First, there are about 3,100 utilities in the US, but in true 80/20 rule fashion, just 213 investor-owned utilities (IOUs, in utility parlance) serve 73% of the national population. These are the utilities that are regulated by state public utility commissions.

Next come the municipal utilities, typically run by cities, but sometimes run by separate governing boards and covering a regional area. There are about 2000 munis, serving about fifteen percent of the US population.

Lastly, there are some 900 co-ops, generally in rural parts of the country, capturing the last 12 percent of the population.

Want to engage with utilities?

• Obviously, the biggest chunk of the market is served by IOUs, but if you want to do business there, you must understand regulation, and understand the fundamentals of utility business models. Yes, IOUs have "tense" relationships with their regulators, but you can navigate these waters if you understand where the shoals are.
• To some degree, munis have far more flexibility than IOUs, in part by dint of their smaller size, but also because they answer only to a board, so decisions can be made faster. (When you think about it, IOUs answer to shareholders and regulators.) I would also aver that munis tend to more focused on good policy-making. After all, the elected board has to show progress to their constituents, so you tend to see some good action on energy efficiency and smart grid, for example.
• Not to dismiss the co-ops, but unless you have an engagement that is specifically tailored to rural, sparsely-populated areas, there isn't much opportunity for you here.

Because I have an IOU background, I tended to have the view that munis are copycats and followers with regard to energy efficiency programs, letting the IOUs do the heavy lifting of program design and development. That view isn't wholly inaccurate, but working with munis has real strategic advantages with regards to flexibility and accessibility. Don't count them out.