Welcome back. So we've already talked about with the help of our great guest speakers public power systems and rural electric cooperatives or co-ops. So we are going to dive into some characteristics and some regulation that is unique to investor-owned utilities. First of all they are privately owned but by shareholders or stockholders which means they are publicly traded companies. Therefore profit and the shareholders can benefit from that. They're also a little more complicated, they are a major presence in the US, but that doesn't mean that they're all necessarily extremely large serving multi-states. Some of them can actually be smaller. Now, typically they're vertically integrated, and that means that they offer generation, transmission, and distribution. But they're not required to do so, so some have made the decision to partner with others to get generation. And you know we've talked about PPAs in a previous lesson. Their regulation depends on whether they are vertically integrated or not, as you can imagine. If they own transmission facilities, they'll be more likely to be regulated by a federal agency. All of them are regulated by state and local agencies. >> As a regulated utility, we have multiple layers of regulations. Primarily you're going to be looking at federal level which they're looking at wholesale transaction. And then, you have the retail level and the state level. So in Colorado, we have a Colorado Public Utilities Commission. Each state across the country usually has some kind of public regulation commission or public utilities commission. They might have slightly different names in each of the states. But we really do see that we have four primary stakeholders that are Influential or impact our environment that we're operating in. Those four different stakeholders would be our communities and our customers directly. So listening to them, hearing what it is that their needs are, trying to meet their needs, whether it's embracing new technologies, moving lights so they can put a new, expand a roadway, whatever that may be. But we also have our regulatory stakeholders, which would include the Public Utilities Commission and the other interest groups that participate in the regulation of the utility. Then of course, there's the legislators and the legislative interest, also working FROM the community perspective but also looking at the long-term policy that you might be impacted by. Those are going to be on the state and on the federal level. And then finally we have of course, our share holders. So the investors in our business looking for if they have a strong investment, that they can have a long term return. So for example, when the primary investors in utilities are going to be investors that are looking for long term stability. Because we have a long history, as you were mentioning. We've been around a long time, and they look for that stability. And so people that are closer to retirement age or in retirement, pension funds, those types of investments would be part of our investor group. Investor isn't such a nameless, faceless person. So PricewaterhouseCoopers, they go out and they do studies on who these investors are in the different types of industries across the country. And not too long ago when they looked at the utility sector, for those that invest directly in utility stocks, the average age is over 50 years old. So that really does tell you something about who's investing in our type of industry. Really looking for that stability long term. >> Before we jump into rates, I really want you to understand about restructuring. Now a monopoly system that is being replaced with competing sellers is what restructuring is all about. What we're trying to do when we restructure is we're trying to get more cost competitive and interconnected players. The truth though is it's been a really bumpy road. Here you'll see a figure that shows you worldwide restructuring efforts. The UK was actually the first country to embrace it, under Margaret Thatcher. And you can see by this world map that Europe remains in the forefront of the restructuring efforts. Australia, New Zealand have made some really significant inroads. And Japan has just started. You can see from the graphic that restructuring has been pretty limited in North America. And furthermore, it's really gone in fits and starts in the United States. One of the main drivers was the California Energy Crisis that occurred in the late 90s and early 2000. That's really what put the brakes on. They were rolling blackouts and major utilities were declaring bankruptcy. Things that people never thought would happen. State retail competition plans emerged over the past 20 years. Some states have opted not to restructure, so they remain vertically integrated. How they approached pricing is a bundled cost of service rate method. Now, restructured states are different, and that is where retail customers get their generation service. Either at market rates from a competitive provider or a provider of last resort. Here you can see I provided you with definitions of those. Let's talk a little bit more about this cost of service. What cost of service means is the utility is allowed to set rates based on the cost that they incur for providing service to their customers. And they have a right to earn a limited profit, which is regulated. >> When you are looking at the cost of operating utility, presenting the information to a commission, as a regulated utility we are responsible for going to the commissioner and telling them. Not only what the dollar amounts are but why we spent it. And why it was the right way for us to spend it. As you can imagine that takes a lot of data and information to back that up and present it. And get validation for it so that you can then recover it. Types of costs. From the generation facilities that we have, whether they're natural gas, coal-fired, wind or solar, they have costs that are associated with the infrastructure. And those infrastructure pieces are called fixed costs. Those are also the kind of costs that you have with your transmission systems. You see the big wires and the big towers that are moving across, usually larger open spaces. Those transmission costs are fixed costs in that infrastructure. Then you step down a little bit closer to the customer, then you move into the distribution system. So there are substations and transformers and all the components, the wires and the meters that go to your house. Those are all, once again, fixed cost. So once you've paid the money into put those there for people to utilize, it's not a matter of how much or how little of it they use after then. Those are cost. Then, you have the variable cost, the day to day, the people in the plants to operate the plants to keep the energy flowing to our customers. There's a B variable cost that accost to that. That we are incurring in order to provide the services that we provide to our customers. >> So we've spent a lot of time talking about the differences and characteristics. As well, as the implications to you as a consumer what the various types of utilities is. We talked about how the history of the industry sets some really strong roots and foundations. In our next lessons, we are going to talk about how the world is going to change. There's going to be new regulation and new technologies. And with that, utilities and consumers are going to need to change. The only thing that promises to stay the same is that consumers demands will increase and utilities will need to keep pace.
