US Electricity Structure

Its characteristics
Unlike any other industries, electricity industry has specific characteristics mainly (1) electricity is non-storable good which means that it is produced at the time when it is needed; (2) electricity flows cannot be directed, therefore transmission system is essential; (3)  it needs huge capital investments (capital intensive) and mostly are fixed costs; and (4) it is regulated by federal agency as well as state agencies, therefore transformation/reformation needs involvement federal and state agencies.  

Its Structure
Electricity industry structure mainly consists of three different divisions (1) power generation; (2) transmission; and (3) distribution and/or retailer. State of competition and regulatory framework are different for each stage/level. Power generation is considered as competitive market while transmission and distribution are natural monopoly regulated by federal energy regulatory commission (FERC) and state commissions (e.g. Illinois Commerce Commission) respectively.

In 2011, main sources of electricity generation predominantly were coal, natural gas, and nuclear accounted for 42%, 25%, and 19% respectively. The rest 13% was contributed by renewable and 1% was produced using oil. Non-hydropower renewable increased almost tripled from 1990 to 2011. Illinois produced 98% electricity using by coal and nuclear (47% and 51% respectively) in 2006. Competition in power generation has occurred mainly due to technological and regulatory improvements. Technological improvement lead to cheaper construction and operating costs in power generation. Public utility regulatory policy act (PURPA) 1978 required utilities to buy electricity from qualifying facilities usually in the forms of non-utility generators (NUGs) or independent power producers (IPPs). Furthermore energy policy act (EPA) 1992 stipulated transmission-owning utilities to open their transmission grids and had to deliver power at reasonable, non-discriminatory and cost-based rates.  

Bottleneck is the main issue in transmission system due to limited capacity. There are seven authorities who are responsible in providing safe and reliable transmission systems in the USA. Those entities are grouped into regional transmission organizations (RTO) and independent system operators (ISO). The RTOs/ISOs are PJM Interconnection, Southwest Power Pool and Electric Reliability Council of Texas (ERCOT), California ISO, Midwest ISO, New York ISO, and New England ISO. ISO was mandated by FERC Order 888/889 while RTO was stipulated by FERC Order 2000.    

In distribution system, 3170 utilities exist in the USA consisted of 239 investor owned utilities (IOUs), 10 federally-owned, 2009 publicly owned and 912 cooperatives. Most of IOUs own generation, transmission and distribution. In 2006 average revenue per kWh was 8.90 cents nationally significantly higher than 7.07 cents in Illinois. In addition among customer classes the highest average revenue per kWh is residential classes then followed by commercial and industrial classes.

In 2010 average electricity price per kWh was distributed to generation, transmission, and distribution as much as 60%, 8% and 32% respectively. In addition, electricity industry is also known as capital intensive industry whereas 179 IOUs accounted for $575 billion in assets similar to almost 5% of gross capital stock of all industries. It had significant contribution to GDP as much as 3.2% in 1994.