Utility Companies

Learn what utility companies do and what we think needs to be changed

When most people think of an energy utility, they think of an organization that owns the entire electric grid system. In the US, this used to be the case! Then, we moved onto a different model, where ownership of parts can be different from just the utility company or the government. Electric grids are complex, expensive and difficult to manage machines that must work every millisecond of every minute or else it becomes very obvious that it's not. The cost of an electric grid not operating adds up rapidly. Several reports recently have estimated a single hour of downtime for manufacturers to cost around $5 million, including this illustration from Bloomberg:

For extended, widespread outages, the damage begins to mimic damages caused by kinetic conflicts, not just standard issues with infrastructure design, such as traffic congestion. Electric grid uptime is not well appreciated until it begins to fail; it is a critical aspect of the modern world.

What is a utility?

We think this is critical to understand in order to know where we are going. When most people think about "utility companies", we assume they are thinking of some organization that owns, operates, and gets compensated for the entire electric grid system, from the power plants, through the wires and transformers, all the way to meter attached to consumer's properties. This used to be more the case and still is, in some places like Puerto Rico. However, when you distill it down, what exactly is a utility company if it doesn't require owning the whole grid?

An electric utility company, at its core kernel, is an entity that is there to compensate power generators and grid operators/asset owners at the time of service and then collects payment from the consumers of the grid's services. They may and usually do collect a margin off this payment from the rate payers (the consumers of grid power).

So where do utility firms come into this? How does the organization around them and inside them change how often a grid may fail or how much it costs the users when it's operating? There are three different existing scenarios that illustrate the differences well:

1. The PJM (Pennsylvania, New Jersey, Maryland interconnected transmission region)

2. ERCOT (Electric Reliability Council of Texas)

3. PREPA (Puerto Rico Electric Power Authority)

There is an extensive amount of differences between these regions but a key factor in our view is how their marketplaces operate. For one, the Puerto Rico grid system essentially does not have one, the PJM region has one with bounds, and ERCOT has a relatively very open one, to the point where end consumers pay wholesale prices in some areas.

Where a consumer of electricity in a home in Puerto Rico has a locked in rate of cost per unit of electricity they use all year, many users in PJM see savings reflected marginally on how they use power. Meanwhile, some users now famously saw shockingly high rates for the power they consumed during the 2021 arctic storm (when the grid came extremely close to total failure based on a mismatch between generation plunging and consumption skyrocketing) but also could see massive savings in their total power bill if they consume in a certain pattern throughout the year, especially aligning it in some areas with solar or wind power generation.