Sales, Revenue, and Price
Because electricity cannot be stored, it must be generated, transmitted to the consumer, and consumed
instantaneously. Electric utility companies were formed to provide these services.1
U.S. electric utilities are high-investment businesses and historically have been treated as
monopolies because duplicate facilities, particularly transmission and distribution lines,
would be inefficient. Thus, franchises are granted to electric utilities for given
geographical areas by regulatory officials. To obtain a franchise, electric utilities must
provide service to all consumers in their territories at a reasonable cost. The service
territory of an electric utility is usually composed of many combinations of consumers.
Electric utilities classify their consumers within end-use sector based on factors such as
demand, rate schedule, and North American Industry Classification System (NAICS) code.
Major Characteristics of U.S. Electric
Utilities
by Type of Ownership
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Ownership
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Major Characteristics
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Investor-Owned Utilities (IOUs) account for about three-quarters of
all utility generation and capacity. There are 239 in the United States, and they operate
in all States except Nebraska. They are also referred to as privately owned
utilities.
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Earn a return for investors; either distribute their profits to
stockholders as dividends or reinvest the profits
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Are granted service monopolies in certain geographic areas
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Have obligation to serve and to provide reliable electric power
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Are regulated by State and sometimes Federal governments, which in turn
approve rates that allow a fair rate of return on investment
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Most are operating companies that provide basic services for generation,
transmission, and distribution.
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Ownership
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Major Characteristics
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Federally Owned Utilities. There are 10 Federally owned utilities in
the United States, and they operate in all areas except the Northeast, the upper Midwest,
and Hawaii.
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Power not generated for profit
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Publicly owned utilities, cooperatives, and other nonprofit entities are
given preference in purchasing from them
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Primarily producers and wholesalers
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Producing agencies for some are the U.S. Army Corps of Engineers, the
U.S. Bureau of Reclamation, and the International Water and Boundary Commission
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The electricity generated by these agencies is marketed by Federal power
marketing administrations in DOE (Bonneville Power Administration, Southeastern Power
Administration, Southwestern Power Administration, and Western Area Power
Administration)
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The Alaska Power Administration was privatized as of August 1998, per
Public Law 104-58 enacted on November 28, 1995
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The Tennessee Valley Authority is the largest producer of electricity in
this category and markets at both wholesale and retail levels
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Ownership
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Major Characteristics
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Other Publicly Owned Utilities include:
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Municipals
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Public Power Districts
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State Authorities
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Irrigation Districts
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Other State Organizations
There are 2,009 in the United States.
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Are non-profit State and local government agencies
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Serve at cost; return excess funds to the consumers in the form of
community contributions, economic and efficient facilities, and reduced rates
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Most municipals just distribute power, although some large ones produce
and transmit; they are financed from municipal treasuries and revenue bonds
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Public power districts and projects are concentrated in Nebraska,
Washington, Oregon, Arizona, and California; voters in a public power district elect
commissioners or directors to govern the district independent of any municipal
government
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Irrigation districts may have still other forms of organization (e.g., in
the Salt River Project Agricultural Improvement and Power District in Arizona, votes for
the Board of Directors are apportioned according to the size of land holdings)
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State authorities, such as the New York Power Authority and the South
Carolina Public Service Authority, are agencies of their respective State
governments
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Ownership
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Major Characteristics
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Cooperatively Owned Utilities. There are 912 cooperatively owned
utilities in the United States, and they operate in all States except Connecticut, Hawaii,
Rhode Island, and the District of Columbia.
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Owned by members (small rural farms and communities)
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Provide service mostly to members only
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Incorporated under State law and directed by an elected board of
directors which, in turn, selects a manager
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The Rural Utilities Service (formerly the Rural Electrification
Administration) in the U.S. Department of Agriculture was established under the Rural
Electrification Act of 1936 with the purpose of extending credit to cooperatives to
provide electric service to small rural communities (usually fewer than 1,500 consumers)
and farms where it was relatively expensive to provide service.
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Service Sectors
Private households and apartment buildings, where energy is consumed primarily
for space heating, water heating, air conditioning, lighting, refrigeration, cooking, and
clothes drying are classified as residential. Nonmanufacturing business
establishments (including hotels, motels, restaurants, wholesale businesses, retail stores,
health, social, and educational institutions) are generally classified as
commercial. Manufacturing, construction, mining, agriculture, fishing, and forestry
establishments are specified industrial. In this discussion, the classification,
other sales includes public street and highway lighting, railroads and railways,
municipalities, divisions or agencies of State and Federal governments under special contracts
or agreements, and other utility departments as defined by the pertinent regulatory agency
and/or electric utility.
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It should be noted, however, demand or annual usage may be the
determining factor used by the electric utility to classify a consumer as being either
commercial or industrial.
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Retail Sales & Price
The average revenue per kilowatthour of
electricity sold by electric utilities is calculated by dividing total annual revenue by total
annual retail sales (in kilowatthours) for each sector and State. The resulting measurement is
the cost (per kilowatthour of electricity sold) for providing service to a sector, given the
rate schedule of the electric utility for that particular sector. The average revenue per
kilowatthour is calculated for all consumers and for each sector
(residential, commercial, industrial, and other sales). Utilities typically
employ a number of rate schedules within a single sector. These alternative rate schedules
reflect the varying consumption levels and patterns of these customers and their associated
impact on the cost to the electric utility for providing electrical service. The average
revenue per kilowatthour by sector reported in publications produced by the Office of Coal,
Nuclear, Electric and Alternate Fuels represents a weighted average of revenue and sales
within and across sectors for all consumers.
To derive the average revenue per kilowatthour, the operating revenue
(includes energy charges, demand charges, consumer service charges, environmental surcharges,
fuel adjustments, and other miscellaneous charges) reported by the electric utility is used.
Utility operating revenues cover--among other costs of
service--State and Federal income taxes and taxes other than
income taxes paid by the utility. The Federal component of these taxes are, for the most
part, payroll taxes. State and local authorities will tax the value of plant (property
taxes), the amount of revenues (gross receipts taxes), purchases of materials and services
(sales and use taxes), and a potentially long list of other taxes that vary extensively by
taxing authority. Taxes deducted from an employee's pay, such as Federal income taxes and the
employee's share of social security taxes, are not a part of the utility's "tax costs," but
are paid to the taxing authorities in the name of the employees. These taxes are included in
the utility's cost of service (for example, revenue requirements) and are included in the
amounts recovered from the customer in rates and reported in operating revenues.
Electric utilities, like many other business enterprises, are required by
various taxing authorities to collect and remit taxes assessed on its customers. In this
regard, the utility serves as an agent for the taxing authority. Taxes assessed on the
consumer, such as a gross receipts tax or sales tax, are referred to as pass through
taxes. These taxes do not represent a cost of the utility and are not recorded in the
operating revenues of the utility. However, taxing authorities differ regarding whether a
specific tax is assessed on the utility or on the consumer. That decision, in turn,
determines whether or not the tax is included in the electric utility's operating
revenue.
Average revenue per kilowatthour from residential consumers is generally
higher than for any other sector, in part due to the higher costs associated with serving
many consumers who use relatively small amounts of electricity. These higher costs include
direct-load costs (such as those for distribution lines) in addition to consumer or
administrative costs. The industrial sector, which generally has the highest use of
electricity, has the lowest average revenue per kilowatthour.
Endnote:
1More detailed information regarding electricity sales, revenue,
and average revenue per kilowatthour is accessible on the Internet at the
following web site addresses:
Contact: Robert Schnapp
Internet E-Mail: rschnapp@eia.doe.gov
Telephone: (202) 287-1787
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