Challenges to the Electric Utility Business Model in a Climate-Changing World
- Feb 23, 2022 5:49 am GMT
This item is part of the Special Issue - 2022-02 - Business Side of Running a Utility in 2022, click here for more
One of the best kept secrets is how utilities operate and especially how investor-owned utilities (IOUs) maintain financial sustainability. Although entirely unintentional, the business model for most public utilities—those entrusted to serve large population sectors—is not well understood by the customers. Under an agreement between the service area – represented by a public utility commission (PUC) – and the utility, the latter is guaranteed to be compensated on a rate base plus a reasonable profit that allows investment on infrastructure. In return, the utility is to offer the service at a “reasonable price” and assure “reasonable reliability” . These principles justified for over a century has served the customers and the nation very well. It has no doubt contributed to the U.S. becoming an economic giant and superpower. The availability of cheap, reliable electricity through the decades is the reason. Electricity rates in the US can be as low as $0.08/kWh (Wyoming) to $0.45/kWh (Hawaii), the median price in the US hovers around $0.15/kWh, far lower than 20 developed nations (for example: Germany $0.35, Denmark $0.31)
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