ELECTRIC UTILITY FUNCTIONS AND SYSTEMS

Traditionally, the term electric utility denoted a vertically-integrated company operating under a monopoly franchise. Vertically integrated meant it performed all of the functions involved to produce and sell electric power for an area of the country be that only a small town, or a region consisting of several states.

Under regulation, this local electric utility held a government granted monopoly franchise, giving it the exclusive right to provide electric service in its territory that small town or those states. In return for that lack of competition, the utility had to agree that it would serve all customers in the region, not just those it saw as advantageous to its business, and to limit its prices to a level deemed reasonable, by the government, based on a review of its costs and spending.

Today, in the United States and much of the world, few utilities with this traditional structure exist. The industry is deregulated, which among other things means that there is no longer a strict monopoly in electric power business and that many of the functions performed by that single vertical utility are fragmented and shared among a number of separate companies. However, the best way to understand the power industry and how it works is to look at this traditional, vertically integrated utility, as it existed until the mid 1990s. Here, a person found in one organization, in correct proportion and with all its gears meshing properly, the entire mechanism needed to produce, deliver, and sell power to home and industry, and to do so as a viable business.

Therefore, this section will look at Big State Power and Light Company, a hypothetical vertically-integrated electric utility of the traditional type, serving a customer base of 1,000,000 connected meters (individual homes and businesses) in a service territory that contains a total population of about two million. Big

State serves a large city and several nearby towns in a territory of about 10,000 square miles. In every respect, Big State Power and Light is a typical “large utility” as it existed prior to deregulation.