Energy & Utilities Café serves as a platform to generate casual conversations about Energy and the Utilities Industry. The content here is meant to strike curiosity and to encourage discussions on the topic for everyone, even if you are not an expert in the field – because energy matters to all.

If you are like most people, you use electricity daily but rarely ponder where it comes from – that is, until it suddenly shuts down and stops working. When that happens, you either wait a few minutes for the power to come back on or contact your utility company to notify them of the outage. Then, the utility personnel identifies the issue, fixes it, and reestablishes power to the affected area. The end. Right?

But how does the utility restore power so quickly? And what happens if they don’t? 

Join me in this journey to learn more about Electric Utilities. Let’s have a Casual Conversation.

What is an Electric Utility?

In simple terms, an electric utility is a company or entity that gets paid to be responsible for providing you, the consumer, with electricity. A more formal definition would include that such a company has four major functions: generation, transmission, distribution, and sales ¹. I will dive further into these four functions shortly. Other definitions may include the term “electricity provider”. For the normal consumer, these two terms (electric utility and electricity provider) may be the same. However, an electricity provider purchases electricity rights in bulk at the wholesale market and then sells that electricity to consumers ². The utility, on the other hand, provides for consumers beyond just buying and selling electricity, with responsibilities including replacing old equipment, fixing power lines, and tree trimming. 

Now, let’s discuss the four main functions of an Electric Utility. 

The first function is generation. Generation refers to a process in which machinery transforms one type of energy [coal, oil, natural gas etc.] into electricity ¹. 

So, every electric utility generates its own electricity, correct?. 

Not quite. Some utilities own generating plants and they manage the grid in their own service area. Other utilities purchase electricity from a wholesale market, or from independent power producers ³. 

The truth is, most utilities do a combination of all of them. But why? Many reasons come into play. If you consider a small utility with a small service area, they probably do not have the resources to build, maintain, and upgrade several generation plants. Also, if they have a sudden influx of people, the increased revenue from electricity sales could not justify the investment of a new generating plant. Plus, power generation plants take a long time to build. Of course, utility size is not the only factor. Some may choose to diversify their generating options to not be dependent on fuel prices or weather (storms, earthquakes, or other natural events). Ultimately, grid reliability, cost efficiency and customer satisfaction may drive generation decisions.

Ok, so what happens after the electricity is generated? 

For the most part, these are the transmission and distribution functions of the utility. Transmission refers to large volumes of electricity being moved from the generation site to a switching substation at high voltages ⁴. These thousands of miles of transmission lines going across a service territory, and across the country, form what is called the electrical grid. There are three major grids in the U.S., the Western Interconnect, Eastern Interconnect, and Texas Interconnect _⁵ (yes, Texas has its own). From the switching stations, electricity travels at lower voltages to substations where it is then distributed to consumers ⁴. The latter are most likely the lines you see around your neighborhood. 

The last stop for electricity is a distributing transformer on the ground or on a pole near your home, and ultimately into your meter. The meter gives a count of the energy consumed by the user. This information is then used by your utility to generate your bill and service charges. This leads to the last function of the utility: sales. We will discuss sales more in our next post.  

To provide the services described above, the utility maintains personnel for each of its functions (generation, transmission, distribution, and sales). This is where engineers, managers, technicians, administrators, and plenty of others work together so electricity is there, at your outlets and at your disposal, whenever you need it.

Ok, that’s great, but am I paying for all that myself? All those fees in my bill, is the government paying any of it? Also, if I cannot choose my electric utility, how do I know they are not overcharging me? 

Great questions, but for that, you will have to wait for our next post – How does a Utility Make Money? See you next time!

We encourage you to find out more about this topic. Start by checking the following references:

• ⁽¹⁾ Philipson, L., & Willis, H. L. (2006). The Electric Industry and its Traditional Regulated Structure. In Understanding electric utilities and de-regulation (pp. 1-27). Boca Raton, FL: CRC/Taylor & Francis.
• ⁽²⁾ What’s the Difference Between a Utility and an Electricity Provider? (2019, August 07). Retrieved October 23, 2020, from https://electricityplans.com/electricity-provider-vs-electric-utility/
• ⁽³⁾ Independent Power Producers (IPPs). (2018). Retrieved October 24, 2020, from https://energypedia.info/wiki/Independent_Power_Producers_(IPPs)
• ⁽⁴⁾ Electric power transmission. (2020). Retrieved October 24, 2020, from https://en.wikipedia.org/wiki/Electric_power_transmission
• ⁽⁵⁾ U.S. Electricity Grid & Markets. (2020, June 26). Retrieved October 24, 2020, from https://www.epa.gov/greenpower/us-electricity-grid-markets