In reading about the electric power system, you will encounter an alphabet soup of organizations: ISO, RTO, PUC, FERC, IOU, BPA, TVA, and more. What are all of these acronyms? WTF? Who’s in charge? Why is it so complicated?
Let’s start with how we got here. Electricity first came to New York City with Edison’s electric company in 1882 - one power plant sending electricity to about 500 houses in the nearby blocks. Pretty quickly, electric companies realized that they could only make money if they didn’t have competition. The startup costs of large generators and wires needed to be repaid over many years of sales - which wouldn’t happen if they got undercut by a new competitor. They made a deal with the government - each utility would get a legal monopoly (protection from competition) in its “service area” and the government would get oversight, mainly over electricity prices charged to customers. This oversight gets done by the state Public Utilities Commission (PUC).
Until the 1930s, it was mostly cities that had power and it was provided either by a local company or by a municipally owned utility. The rural electrification programs of the New Deal brought the government into the electricity system - with lots of hydroelectric dam building by the Tennessee Valley Authority (TVA) in the South, and the Bonneville Power Authority (BPA) in the Northwest. A bunch of small electric co-ops got started to deliver this power to rural areas.
By 1950, about 80% of US homes had electricity.
The grid got more filled in and we used more electricity, but the structure of the system didn’t change much over the next few decades. The main players in these years were the vertically integrated monopoly utilities - and they were usually investor owned utilities (IOU). They owned and were responsible for everything that made the system run: the customer billing, the distribution wires (the ones you see on the pole outside your home), the substations (where the distribution system meets the transmission system), the transmission lines, and the far off power plants1. Today we talk about this system in three pieces: generation, transmission, and distribution.
In the late 1990s, the federal government and some states started pushing for electricity “deregulation”. Mainly this meant breaking up the vertically integrated utility monopolies and introducing competition to the generation side of the business2. This meant that instead of each utility generating all of its own power for its service area, they would now be able to sell power back and forth3. There are a lot of side effects of this idea. The main one is that a neutral party has to be in charge of running the regional market for wholesale electricity. This is called an Independent System Operator (ISO) or a Regional Transmission Organization (RTO) - they are two names for essentially the same role.
The other major side effect is that these new ISOs had to design electricity markets4 and make the day-to-day decisions of how much power each plant should produce. To make things extra confusing, not every part of the country has adopted this model - today the US has seven ISO/RTOs but many places still run on the old vertically integrated utility monopoly system (these are the unshaded places in the map below).
This map is from FERC. My favorite silly name is probably ERCOT (a new fruit? a new amusement park like EPCOT, except in Texas?). If you’re wondering why the areas are not contiguous (especially MISO) - it’s because transmission lines make things weird.
Within the ISOs, another form of electricity company has cropped up - the “generation company” (GENCO). Some of these GENCOs are small owners of just one wind farm, some are the generation piece of a former utility monopoly, some are holding companies with portfolios of power plants that span across states. They all compete to sell wholesale power.
As the electric system got more interconnected, we had a few very large multi-state blackouts. Most notably, the November 1965 blackout which started in Canada, but quickly cascaded across the border to plunge New York City into darkness. To keep this from happening, the federal government created “balancing authorities” (sadly, they don’t get an acronym) to be in charge of reliability. Large blackouts still happen, but not often. Where ISOs exist, they are the balancing authority for that region. Where they don’t exist, there is an independent balancing authority that is in charge of reliability amongst the monopoly utilities in that region.
Sitting on top of all this mess is the Federal Energy Regulatory Commission (FERC). A federal agency, FERC is full of lawyers who make rules and settle disputes related to the electric power system. Over the past twenty years or so the agency has mostly been technocratically focused on preventing blackouts, increasing competition, and ensuring a level playing field in the wholesale electricity markets. But in the Trump era, FERC has made some overtly biased rulings in favor of fossil fuels.
Traditionally fossil fuel power plants were located far from population centers because land was cheaper and they were belching smoke and pollutants into the air. ↩
Even under the old system utilities would sometimes sell power to each other. But the process was far from a transparent market - often it involved one utility calling another on the phone and hashing out a price. ↩
Why do we need to design a market for electricity? Why not just let the players involved just trade it, like soybeans on the Chicago mercantile exchange? Basically because electricity is not soybeans - it’s not quite a commodity. The electricity “market” is a strange mix of pricing and the engineering constraints of the system. We essentially can’t store electricity at scale - grid storage today is far less than one percent of the grid’s capacity and even the new batteries only have a 4 hour duration. This means that power needs to get used the moment it is produced. You also can’t easily ship electricity across the country. Transmission lines have limited capacity. Going over a transmission line’s capacity can result in blackouts and fires. Even if you are under the limits, power loss over transmission lines is proportional to how long the lines are - which means your “shipping costs” go up the further you send the power, because some of it gets wasted along the way. ↩
Unless you live in one of the states that has deregulated retail electricity sales. In that case the company you are paying for your electricity bill may be leasing access to the wires to your home from another company. ↩