Molly Ayala
The United States has the world's second-largest electricity sector, with 4,178 Terawatt-hours of generation in 2023. The electricity sector in the US is regulated by different public and private entities, with the federal government playing a significant role. Federal-owned systems in the electricity sector include federal agencies like the Tennessee Valley Authority (TVA), which provides power to over 10 million people in Tennessee and surrounding states, and Power Marketing Administrations (PMAs) of the Department of Energy, such as the Bonneville Power Administration. The Federal Energy Regulatory Commission (FERC) is the principal economic and policy regulator at the federal level for the electric power industry. The US Department of Energy (DoE) is responsible for addressing energy, environmental, and nuclear challenges, and it oversees the FERC.
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What You'll Learn
- The US electricity sector is the world's second-largest
- Federal-owned systems include federal-, state- and municipal-run utilities
- The Eastern Interconnection, Western Interconnection and Texas Interconnection are the three major grids
- The Federal Energy Regulatory Commission (FERC) regulates wholesale markets
- Federal hydropower and PMAs are critical elements of the power supply
The US electricity sector is the world's second-largest
In 2023, the US consumed 4,271.88 terawatt-hours of electricity, with residential customers accounting for 35.23% of this consumption. The average commercial customer used 6,019 kilowatt-hours per month, with an average monthly electrical bill of $746.96, an increase of $96.76 (+14.9%) from 2021. Demand from data centres, artificial intelligence trainers, clean-tech factories, and crypto-mining has become a significant component of overall demand in the 2020s.
The US electricity sector is regulated by different public institutions, including the Department of Energy, the Environmental Protection Agency, and the Federal Trade Commission. The sector receives support through various subsidies, tax incentives, and research and development funding. In 2009, the Low Income Home Energy Assistance Program (LIHEAP) received federal funding of $5.1 billion.
There are three major synchronous electrical grids in the continental US: the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection. These grids are operated by transmission system operators (TSOs), which are typically owned by utilities in their respective service areas. Within these grids, there are also Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs), which are not-for-profit organizations that promote competition by providing indiscriminate access to various suppliers.
The US electricity sector is undergoing a transition towards deregulation, with many states abandoning the traditional vertically integrated utility model. Investor-owned utilities (IOUs) served 72% of US electricity customers in 2017, and they continue to be prevalent in heavily populated areas. However, the rise of independent energy suppliers and the increasing cost-effectiveness of renewable energy sources are shaping the future of the US electricity sector.
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Federal-owned systems include federal-, state- and municipal-run utilities
The United States has a large electricity sector, with 4,178 Terawatt-hours of generation in 2023. The sector is a mix of publicly and investor-owned utilities. The latter are large electric distributors that issue stock owned by shareholders and tend to be very large, serving around 72% of US electricity customers.
Publicly owned utilities (POUs) include federal-, state-, and municipal-run utilities. In 2017, there were 1,958 POUs with an average of 12,100 electricity customers each. Federal administrative agencies are tasked with implementing energy legislation passed by the US Congress. The US Department of Energy (DoE) is the principal economic and policy regulator at the federal level for the electric power industry. The DoE is responsible for implementing, administering, and enforcing most of the provisions of the EPAct 2005, FPA, NGA, and other statutes regulating the electric utility industry.
The Federal Power Program includes the Power Marketing Administrations (PMAs) and the Tennessee Valley Authority (TVA). The PMAs are funded by ratepayers and provide cost-based hydroelectric power produced at federal dams operated by the US Army Corps of Engineers and the Bureau of Reclamation. The TVA was established by Congress in 1933 to provide rural electrification, economic development, flood control, and navigation along the Tennessee River. It continues to provide power to 153 public power utilities and rural electric cooperatives serving more than 10 million people in Tennessee and parts of six surrounding states.
Municipal-run utilities have a long history in the US, with local governments setting up their own electric distribution utilities in the late 1800s and early 1900s. By 1923, more than 3,000 existed, but many cities later sold their equipment and transferred their customers to investor-owned utilities due to technological improvements in generation and transmission that made smaller plants uneconomical.
Cooperatives, or co-ops, are not-for-profit member-owned utilities located in 47 states but are most prevalent in the Midwest and Southeast.
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The Eastern Interconnection, Western Interconnection and Texas Interconnection are the three major grids
The United States has the world's second-largest electricity sector, with 4,178 Terawatt-hours of generation in 2023. The US electricity grid is divided into three major regions: the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection.
The Eastern Interconnection, one of the two major wide-area synchronous grids in North America, reaches from Central Canada eastward to the Atlantic coast (excluding Quebec), south to Florida, and west to the foot of the Rockies (excluding most of Texas). All electric utilities in the Eastern Interconnection are electrically tied together and operate at a synchronized frequency of 60Hz.
The Western Interconnection is the other major wide-area synchronous grid in North America. It stretches from Western Canada south to Baja California in Mexico, reaching eastward over the Rockies to the Great Plains. Similar to the Eastern Interconnection, all electric utilities in the Western Interconnection are electrically tied together and operate at a synchronized frequency of 60Hz.
The Texas Interconnection is one of the three minor grids in the North American power transmission grid. It covers most of the state of Texas and is managed by the Electric Reliability Council of Texas (ERCOT). The Texas Interconnection is maintained as a separate grid for political reasons, but it can draw power from other grids using direct current ties. By not crossing state lines, this grid is generally not subject to federal regulation. All electric utilities in the Texas Interconnection are electrically tied together and operate at a synchronized frequency of 60Hz.
These three major grids are tied together at various points with DC interconnects, allowing electrical power transmission throughout the contiguous US, parts of Canada, and Mexico. Within these physical grids, there are Independent System Operators and Regional Transmission Organizations, which are not-for-profit organizations that operate an area of the grid and are obliged to provide indiscriminate access to various suppliers to promote competition.
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The Federal Energy Regulatory Commission (FERC) regulates wholesale markets
The Federal Energy Regulatory Commission (FERC) is an independent agency that regulates the transmission and wholesale sale of electricity in interstate commerce. FERC typically has jurisdiction over sales of electricity between power suppliers and utilities, known as "wholesale sales". These wholesale sales occur in organised markets in many parts of the country, and FERC is responsible for overseeing these markets to ensure reasonable pricing.
FERC's role in the electricity markets involves regulating interstate transmission and wholesale electricity sales between generators or electric power providers (sellers) and local utility companies (buyers). This includes overseeing the "day-ahead energy market" and the "real-time energy market". In the day-ahead market, the RTO/ISO schedules electricity production to meet forecasted demand 24 hours in advance, taking into account various factors such as weather, day of the week, and planned power plant outages. The real-time market, on the other hand, involves the RTO/ISO adjusting to system conditions within short intervals, often between 5 and 15 minutes, to address issues like unplanned outages or increased demand due to weather.
RTOs and ISOs play a crucial role in maintaining grid stability and incorporating new energy technologies, such as wind, solar, and battery storage, into market operations. They act as a middle layer of decision-making between individual utilities and FERC, engaging in ongoing discussions with stakeholders to develop new market and operational rules. FERC has the final authority to review and approve or deny changes to RTO and ISO protocols and operations.
It is important to note that FERC does not regulate retail electricity purchases by consumers, which are overseen by state and local regulators. Additionally, certain regions, like the Electric Reliability Council of Texas (ERCOT), are not subject to FERC jurisdiction due to their grid being isolated from other states.
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Federal hydropower and PMAs are critical elements of the power supply
The United States has the world's second-largest electricity sector, with 4,178 Terawatt-hours of generation in 2023. The electricity transmission network is not owned by individual utilities but by companies and organisations that are required to provide indiscriminate access to various suppliers to promote competition.
Electric utilities in the US can be in charge of both electricity generation and distribution. There are three ownership types: investor-owned utilities, publicly run or managed utilities, and cooperatives. Investor-owned utilities served 72% of US electricity customers in 2017. However, publicly owned utilities, or POUs, include federal-, state-, and municipal-run utilities, as well as political subdivisions, also called public utility districts.
Federal hydropower and Power Marketing Administrations (PMAs) are critical elements of the nation's power supply. The four federal PMAs are the Bonneville Power Administration (BPA), the Southeastern Power Administration (SEPA), the Southwestern Power Administration (SWPA), and the Western Area Power Administration (WAPA). They are federal agencies within the US Department of Energy (DOE) responsible for marketing electric power, primarily from multiple-purpose water projects operated by the Bureau of Reclamation and the US Army Corps of Engineers.
PMAs are important sources of power for rural electric cooperatives, with more than 600 cooperatives in 34 states as PMA power customers. They play a large role in transmission, both as transmission owners and operators, and function as balancing authorities for their regions. PMAs are required to set rates to cover costs at the lowest possible rates to consumers, forgoing any profits. They receive financial support from the US government, including the ability to borrow money from the US Treasury at lower interest rates.
The concept of "preference" has been in law for over 80 years, giving not-for-profit utilities the first option to buy power produced at federal dams. This is based on the idea that rivers are public goods, and the power they generate should not be sold at a profit. Power rates from federal hydropower dams help cover the costs of other activities, such as navigation, flood control, water supply, environmental programs, and recreation.
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Frequently asked questions
The US electricity sector is the second largest in the world, with 4,178 Terawatt-hours of generation in 2023. The sector is made up of 3,304 electricity providers, including publicly owned utilities, cooperatives, investor-owned utilities, power marketers, and federal utilities.
Federal-owned systems of electricity in the USA include federal-, state-, and municipal-run utilities. There are nine federal utilities, including the Tennessee Valley Authority (TVA) and Power Marketing Administrations (PMAs) of the Department of Energy, such as the Bonneville Power Administration.
Electricity prices in the USA are set in different ways depending on the type of market. In regulated markets, state regulators oversee how electric utilities set electricity prices. In deregulated markets, electricity prices are set by the market with some federal oversight.
FERC is an independent regulatory agency within the US Department of Energy (DoE) that regulates the electric power industry at the federal level. FERC implements, administers, and enforces statutes regulating the electric utility industry, such as EPAct 2005 and FPA.
