What is electricity regulation? What is deregulation?
To understand deregulated electricity markets, it's important to understand how regulated markets work. Three key components make up the flow of electricity from source to consumer: generation, transmission, and distribution. In a regulated electricity market, the utility is vertically-integrated, meaning they own the physical infrastructure (power plants, transmission lines, transformers, etc.) to control all three components. A utility regulatory commission in each state governs that state's utilities.
In a deregulated electricity market, the utility divests ownership in generation and transmission and is responsible for the distribution. This includes distribution, operations, and maintenance from the interconnection at the grid to the meter; billing the ratepayer; and acting as the Provider of Last Resort (POLR).
The utility must purchase electricity on the wholesale market and compete with other electricity suppliers. Deregulated markets feature grid operators who administer wholesale markets to ensure reliability on the grid and prevent blackouts.
Federal Energy Regulatory Commission (FERC)
The Federal Energy Regulatory Commission, or FERC, is an independent agency that regulates the interstate transmission of electricity, natural gas, and oil. FERC also reviews proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines as well as licensing hydropower projects. The Energy Policy Act of 2005 gave FERC additional responsibilities as outlined in the updated Strategic Plan.
For a complete list of FERC's responsibilities, please click here.
North American Electric Reliability Corporation (NERC)
The North American Electric Reliability Corporation (NERC) is a not-for-profit international regulatory authority whose mission is to assure the reliability of the bulk power system in North America. NERC develops and enforces Reliability Standards; annually assesses seasonal and long term reliability; monitors the bulk power system through system awareness; and educates, trains, and certifies industry personnel. NERC’s area of responsibility spans the continental United States, Canada, and the northern portion of Baja California, Mexico. NERC is subject to oversight by the Federal Energy Regulatory Commission and governmental authorities in Canada.
Regional Transmission Operators (RTOs) and Independent System Operators (ISOs)
Regulated by FERC, these independent, non-profit organizations coordinate generation and transmission across wide geographic regions, matching generation to the load instantaneously to keep supply and demand for electricity in balance. The grid operators forecast load and schedule generation to assure that sufficient generation and back-up power is available in case demand rises or a power plant or power line is lost. They also operate wholesale electricity markets that enable participants to buy and sell electricity on a day-ahead or a real-time spot market basis. These markets provide electricity suppliers with more options for meeting consumer needs for power at the lowest possible cost.
Listed below are the current North American RTOs and ISOs:
- PJM Interconnection (PJM)
- New York ISO (NYISO)
- ISO New England (ISO-NE)
- Electric Reliability Council of Texas (ERCOT)*
- Midcontinent ISO (MISO)
- Southwest Power Pool (SPP)
- California ISO (CAISO)
- Alberta Electric System Operator (AESO)
- Ontario Independent Electricity System Operator (IESO)
* Since ERCOT's region is contained within the state of Texas and does not cross state lines, it is not under FERC's jurisdiction.