The U.S Electricity Power System

The U.S. electricity market has two unique characteristics that set it apart from many other countries, the first being the diversity of participants in the electricity supply market, including generation and transmission and distribution entities, and the second being the relative lack of federal government regulation of the electricity market. Long-term market-based reforms and diverse participants have created a very highly privatized generation market in the United States. 84% of U.S. electricity is supplied by firms owned by private investors, with only 4% supplied by federally regulated firms and another 12% supplied by state firms and cooperatives. This means that customers have no choice but to buy their electricity from them. To keep the price of electricity reasonable for customers, state regulators are responsible for overseeing how these power companies set their prices. On the transmission and distribution side, the market exhibits the same diverse and segmented dynamics, with more than 3,200 companies transmitting and distributing power to mass consumers, 2,200 of which are government-owned. Because of this diversity of market players and state-by-state differences in regulatory structures and instruments, the U.S. federal government has lacked electricity market policies at the national level.

Next, we going to talk about what are RTO and ISO, in the US, an electric power transmission system operator (TSO) that coordinates, manages, and keeps an eye on a multi-state electric grid is known as a regional transmission organization (RTO). Electric grids that span multiple states are governed by the Federal Energy Regulatory Commission (FERC), as the movement of power between states is regarded as interstate commerce. The purpose of the RTO is to promote economic efficiency, reliability, and non-discriminatory practices while reducing government oversight. An independent system operator (ISO) is similarly an organization formed at the recommendation of FERC. In the areas where an ISO is established, it coordinates, controls, and monitors the operation of the electrical power system, usually within a single US state, but sometimes encompassing multiple states. Order No. 888 promoted the concept of independent system operators (ISOs). RTOs typically perform the same functions as ISOs but cover a larger geographic area. ISOs and RTOs coordinate generation and transmission across a wide geographic area, instantly matching generation with load to maintain a balance between power supply and demand. Grid operators forecast loads and schedule generation to ensure that there is sufficient generation and backup power in the event of an increase in demand or an outage at a power plant or transmission line. They also operate wholesale electricity markets that enable participants to buy and sell electricity in day-ahead or real-time spot markets. These markets provide electricity suppliers with more options to meet consumers’ electricity needs at the lowest possible cost.

One essential element of the total energy scene is the wholesale electricity market. It describes the exchange of electricity between generators and resellers. Let’s take a closer look at the wholesale power markets. The wholesale market is the buying and selling of electricity between generators and distributors. Distributors include electric utilities, competitive power suppliers, and power marketers. For most areas within the United States, wholesale market operations and transactions are regulated by the Federal Energy Regulatory Commission. Wholesale markets begin with a generator, which, after obtaining the necessary approvals, connects to the grid and generates electricity. The power generated by the generator is purchased by an entity that typically resells that power to meet the needs of end users. These resale entities typically purchase power through the marketplace or contracts between individual buyers or sellers. The price of wholesale power can be pre-determined by buyers and sellers through bilateral contracts or by organized wholesale markets. The clearing price of power in these wholesale markets is determined through auctions in which generating resources offer a price that provides a specific amount of MWh of power.

 

https://en.wikipedia.org/wiki/Regional_transmission_organization_(North_America)

https://learn.pjm.com/electricity-basics/market-for-electricity.aspx

https://www.epa.gov/green-power-markets/power-market-structure

https://www.rff.org/publications/explainers/us-electricity-markets-101/

https://www.ferc.gov/media/energy-primer-handbook-energy-market-basics

This article is a part of the class

“751447 SEM IN CUR ECON PROB”

supervised by

Asst. Prof. Napon Hongsakulvasu

Faculty of Economics,

Chiang Mai University

This article was written by Chuyi Luo 641615501