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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're going to dive into some characteristics and some regulation that is unique to investor owned utilities first of all they're privately owned but by shareholders or stockholders which means they're publicly traded companies they're for-profit and the shareholders can benefit from that they're also a little more complicated they are a major presence in the u.s 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 the 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 regulation primarily you're going to be looking at the federal level which they're looking at wholesale transactions and then you have the retail level and the state level so in colorado we have the colorado public utilities commission each state across the country usually has some kind of public regulation commission or public utilities commission they may have a slightly different name in each of the states 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 light so they can put an expanded 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 a utility then of course there's the regulator the legislators and uh the legislative interests you know 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 shareholders so the investors in our business and looking for if they have a strong investment in us that they can have a long-term uh return so for example one of the primary investors in utilities are going to be uh 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 invested 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 you know 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 an 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 2000s that's really what put the brakes on there 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 remained vertically integrated how they approach 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 a utility is allowed to set rates based on the cost that they incur for providing service to their customers and they have the right to earn a limited profit which is regulated when you're looking at the cost of operating a utility and presenting the information to a commission as a regulated utility we're responsible for going to the commission 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 so 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 that those infrastructure pieces are called fixed costs those are also the same kind of cost that you have with your transmission system so you see the big wires and the big towers that are moving across usually large open spaces those transmission costs are fixed costs in that infrastructure then you step down a little bit closer to the customer and you move into the distribution system so there's substations and transformers and all the components the wires and the meters that go to your house those are all once again fixed costs so once you've paid the money in to 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 sunk costs 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 those would be variable costs that custom 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 about the various types of utilities we've talked about how the history of the industry sets some really strong roots and foundations in our next lessons we're going to talk about how the world is going to change there's going to be new regulation and new technology and with that utilities and consumers are going to need to change the only thing that promises to stay the same is that consumer demands will increase and utilities will need to keep pace