The US electric power generation industry consists of about 2,200 generating plants with combined revenue of $80 billion. Major companies include Duke Energy, Exelon, American Electric Power, and Dominion Resources. The industry is highly concentrated: the 50 largest companies operate more than 50 percent of the generating facilities and earn over 85 percent of industry revenue. In addition to investor-owned utilities, there are about 2,000 government-owned electric power companies at the federal, state, and municipal level, and another 900 user-owned electric cooperatives.
COMPETITIVE LANDSCAPE
Demand is driven by commercial, government, and residential needs for electrical power, which depend on population growth, economic activity, and electricity prices. Profitability is determined by government regulations and fuel costs. Large companies have an advantage in negotiating fuel contracts and being able to pass the costs of implementing government regulations directly to consumers. Small companies can compete effectively by exploiting market niches, such as offering “green power” in regulated markets. The industry is capital-intensive: average annual revenue per employee is about $640,000.
The electric power industry has been moving to deregulation for many years. Federal laws have been modified to remove many of the structural constraints, and state laws are changing to encourage competitive provision of electric power. Structurally, deregulation policies are separating transmitting and delivering electric power from power generation, and companies are either divesting their generation facilities or putting them in an independent corporate entity.
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