Investor-owned utilities, known as IOUs, are for-profit corporations that provide electricity, natural gas, water services, or other necessities to residents over a defined service territory. They are the largest utility providers in the U.S. For electricity, investor-owned utilities serve three out of every four customers, even though they make up a minority of the existing providers; IOUs serve nearly all natural gas customers.
Most IOUs occupy a monopolistic position in an industry or region due to the nature of the services they provide. Because of the high start-up costs of building the necessary infrastructure to provide a service (grid, plants, power lines, distribution networks, etc.), and the inconvenience to local residents of setting up competing infrastructure, states have granted most utilities areas in which they are either a monopoly or duopoly.
But though they provide public goods and are often treated as public entities, private utilities are still private corporations. They issue stock to shareholders and aim to maximize returns and profits. They engage in extensive lobbying, often to pressure regulatory agencies and state legislatures to allow them to unreasonably hike rates or engage in other predatory practices at the expense of consumers. In recent years, a merger spree among utilities has led to extreme levels of consolidation, increasing both their economic and political power.
In contrast, public utilities do not have the same incentives to extract money from their consumers. Data from the U.S. Energy Information Association shows that public-utility rates are, on average, 13 percent lower than those of IOUs. A joint Economic Liberties-MIT analysis found that for the past 30 years, investor-owned electric utilities have overcharged American consumers by an average of $5 billion per year.
In most states, monopoly utilities are regulated by a public body, often known as a public utility commission, or PUC. But state legislators still have broad discretion to ensure that monopoly utilities are serving their required role: providing necessities to the public at a reasonable cost.
Below are 11 policy ideas for state legislators who want to reduce the power monopoly utilities wield over consumers and their state’s political process. This is not an exhaustive list of solutions for the problems created by investor-owned monopoly utilities, but it offers a foundation from which a broader reimagining of the utility industry will be possible.