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15.3: Institutional Arrangements for Electricity Infrastructure

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  • In the early years of electricity use in the US, electric utilities were private, small and vertically integrated. Over time, all of these characteristics have changed. Public operating companies emerged, such as the various rural co-operatives and the federal Tennessee Valley Authority. Economies of scale led to much larger companies, with Pacific Gas & Electric having over 5 million customers. Finally, organizations can now specialize in one system aspect, such as power generation, transmission or distribution.

    Grid management is provided by regional transmission organizations (RTO), such as PJM in the Pittsburgh region. These organizations provide a market for wholesale energy purchases, matching demands for power and supply from power generators. Electricity demand varies over the course of a day (with low points in the middle of the night) and over the course of a year (with heavy air conditioning electricity demands in the summer). Electricity supply can also vary as plants come on and offline or as wind turbines and solar panels respond to weather conditions. As a result, balancing demand and supply is sometimes difficult, especially since storage of generated power is expensive. In practice, the RTO must keep extra, rapid response generating capacity available for demand or supply fluctuations. Moreover, the marginal cost of providing electricity varies over time, including relatively short units of time.

    The US regulatory regime for electricity is complicated and changing over time. At the federal level, the Federal Energy Regulatory Agency (FERC) is a key player, with authority to regulate inter-state electricity sales, wholesale electricity rates and hydroelectric power. FERC has issued reliability standards for electricity provision. At the state level, Public Utility Commissions provide varying levels of regulation.