The different components of the industry are taking actions to prepare for competition.  One component, the investor-owned utilities (IOUs), have traditionally produced and sold most of the electricity in the United States, but their dominant position is being threatened due to the changes taking place.  They have been taking actions to stay competitive through such activities as lowering operations and maintenance (O&M) costs, staff reductions, mergers and acquisitions, diversification into nonutility businesses, and reorganization of corporate structures.

Allocation of Revenue Dollars from Electric Operations for Major U.S. Investor-Owned Utilities, 1996	Operations and maintenance costs plus fuel costs accounted for almost 58 percent of major IOU revenues in 1996. These O&M costs are allocated toward power production, power purchases, administrative and general, transmission and distribution, and customer sales and expenses.
Allocation of Electric Operation and Maintenance Expenses of Major U.S. Investor-Owned Utilities, 1996

Operation and Maintenance Expenses of Major U.S. Investor-Owned Utilities, 1986-1996
	IOU O&M costs have decreased by 22 percent from about 4.6 cents per kWh in 1986 to 3.5 cents per kWh in 1996.   Many IOUs have significantly reduced their workforce and lowered their payroll expenses through attrition, early retirement, and voluntary and involuntary severance. From 1986 to 1996, employment at major IOUs decreased by about 25 percent, a reduction of more than 100,000 employees.
Employment at Major U.S. Investor-Owned Utilities, 1986-1996
	Mergers and acquisitions are another strategy being used to become more competitive.  They combine resources, eliminate redundant operations and staff, and reduce costs. Over the past 11 years, 39 electric IOUs have merged with other utilities in the industry.

Number of Investor-Owned Electric Utilities, 1986-1996

Diversification into nonutility businesses (such as energy service companies; cogeneration and independent power production oil and gas exploration, development, and production; and foreign utility ventures) is helping some IOUs to remain viable. While these types of investments have been a feature of the electric utility industry for decades, recent changing regulatory constraints and increased competition have resulted in utilities investing more aggressively in nonutility businesses. From 1992 through 1994, registered electric utility holding companies increased their ownership of nonutility businesses from 95 companies to 160 companies, an increase of almost 70 percent in 3 years. Exempt holding companies show a similar pattern. In 1992, 72 exempt electric holding companies owned 1,661 nonutility subsidiaries.  By 1994, exempt holding companies owned 1,954 nonutility businesses.

Number of Nonutility Subsidiary Companies Owned by Electric Utility Holding Companies, 1986, 1988, 1990, 1992, and 1994