What is the grid?

An electrical grid is not unlike the telephone network or the Internet.  The US grid is a complex network of more than 7,300 power plants and transformers connected by more than 450,000 miles of high-voltage transmission lines and serves 145 million customers. In most countries, they are state owned but in the US, the grid is nearly all privately owned.

Source: US DOE, EIA

The US grid is actually divided into three major regions: the Eastern Interconnection, which  operates in states east of the Rocky Mountains; the Western Interconnection, which covers the Pacific Ocean to the Rocky Mountain states; and the Texas Interconnected system.

Each region is in fact composed of interconnected local electricity grids, which maintains reliability to the grid by providing redundancy. That is, there are multiple routes for power to flow to supply power to multiple load centers. This ensures minimal loss of service in case transmission lines or power plants fail.

What are the value chain components of the grid?

Traditionally, there are four major value chain entities that work together to deliver the electricity to you: the generating plant, transmission & distribution lines, and finally the utilities. You are most probably most familiar with the utilities, they are the retail entities that service your home and collect fees for how much you use each month.

How is the grid managed in the US?

Grid operators constantly monitor and manage the demand, supply, reserve margins, and power mix to ensure that you have immediate access to power in your home or business. What is the reserve margin? It is a specified backup generation capacity that can compensate for potential forecasting errors, unexpected power plant shutdowns or weather events.

Source: U.S. Energy Information Administration, based on North American Electric Reliability Corporation, 2012 Summer Short-Term Reliability Assessment.

The grid operator uses a three-phase planning process to ensure that power plants produce the right amount of electricity to meet electric demand at any given time. Electricity supply must balance demand at all times in order to avoid a blackout or other cascading problem. The production of electricity is adjusted in 15 minute intervals to account for demand changes throughout the day. For this reason, there are three main types of power plants: baseload, load-following, and peakers.

Baseload power plants meet the minimal power needed by the grid and are designed to be on most of the time. Their capacity factor, or percent of time operational, is above 80%. They are only shut down or curtailed when performing maintenance or repair. Baseload power is the cheapest type of generation and usually supplied by coal fired and nuclear power plants because they can provide large amounts of power (up to 1.6 GW).

Load-following plants, also known as intermediate load plants, are typically combined-cycled gas fired power plants, which have a high thermal efficiency of up to 58%.  They have a gas turbine and a waste heat recovery system to capture the gas turbine’s exhaust to drive a steam turbine that produces additional electricity. Generation from load-following plants can be ramped up and down as needed. Their capacity factor is usually less than 30% of the time. But they are more complex to maintain and more expensive to operate/

The power plant of “last resort” are peaker plants. They are turned on for even shorter periods of time to meet extremely high high demands, for example, when air conditioning is used during hot days. Due to their low capacity factor, which could be as low as a few hours for the entire year, they the most expensive type of generation.

Who owns the grid?

Depending on the country, ownership of the grid and its various value chain segments may be state-owned or completely privatized. The transmission and distribution segments are often discussed together.  However, ownership entities may not be the same.

For the purposes of this article, we’ll focus on the US & Canada, where the grid is nearly entirely privately owned.  In a given region, a private company may own generation but not transmission.  For example, in the southeast United States, the high voltage transmission lines may be owned by a power company like Duke Energy, but the electrical substations where power is distributed may be owned by a municipality or an industrial factory.  In other states, a private company may control the entire value chain the from power plants to the retail entity that bills you.

How is power bought and sold in the US?

Electricity is bought and re-sold on the wholesale power market before finally reaching the final consumer.  With the exception of Texas, this market is regulated by the Federal Energy Regulatory Commission (FERC) due to the interstate nature of the grid.

The wholesale market is open to utility owned suppliers and marketers, non-utility independent power producers (IPPs), and excess generation from traditional vertically-operated utilities. Furthermore, participants in the wholesale market do not necessary have own generation capacity or serve the end-user. Much like other commodity markets, individual traders (power marketers) buy electricity on the market to re-sell it.

Once the electricity is procured from the wholesale market, it is sold to the final consumer through the retail market. In states where full retail competition exists, customers may choose from either their incumbent utility supplier or from an array of new competitive suppliers

How do grid operators work together?

Within the regional wholesale markets, grid operators organize under a regional transmission organization (RTO) or independent system operator (ISO). These entities serve as a third-party independent operator of the transmission system to control, monitor, and coordinate the operations of a grid.

About 60% of the U.S. electric power supply is managed by RTOs. Ten Regional Transmission Organizations (RTOs) operate bulk electric power systems across much of North America.

These operators ensure that no preference is given in the dispatch of a utility-owned generator over a competitive generator. Grid operators must be certified under the North American Electric Reliability Corporation (NERC).


The value chain for the electrical grid continues to evolve.  It evolves by necessity, as new technologies change how power is produced, transmitted, distributed and managed.  Coal powered the Industrial Revolution but at the price of clean air and water. The nuclear age delivered the means to explore distant planets and deliver baseload power to major cities without air pollution.  But it brought the risk of radioactive contamination.  The advent of renewables has created a new value chain segment, storage.  When scaled properly, storage not only solves the challenge of intermittency but delivers a more resilient and efficient power grid.


If you want to know more about the grid, try these links: