The Western electricity transmission system is a complex network that interconnects the entire western United States, from Canada to Mexico, and as far east as Montana, Utah, and New Mexico. Within that complex regional network, electricity is free to follow alternative paths, each path offering varying degrees of resistance. Each path's transfer capability changes as generators place more or less electricity onto the network and as consumers take more or less electricity off the network. The structure of the Western grid is a model of how a decentralized and deregulated transmission grid might be organized. To understand the economics of electricity, it is necessary to understand some of the technical issues involved.
Power flows depend on voltage parameters and resistance.
When power is injected into the network at one point and withdrawn at another, line obstructions change over the network and flows are redirected. Total energy inflows and outflows must balance, but the paths that achieve balance change dynamically. The stability of the network requires that power pulses be kept near 62 Hz. Consequently, transmission pricing and arbitrage cannot be conducted as though electrons will flow solely along a contract-determined path. Power injections and withdrawals must balance and their distribution over the network must be consistent with load balance and flow constraints on the network arcs.