Creating a Smarter U.S. Electricity Grid

Starting in the late 1980s, federal and state governments began to restructure and deregulate some segments of the U.S. electric power industry. The basic and deregulate some segments of the U.S. electric power industry. The basic idea was that the generation, transmission, physical distribution, and retail idea was that the generation, transmission, physical distribution, and retail supply of electricity would be “unbundled” from one another. The physical distribusupply of electricity would be “unbundled” from one another. The physical distribution of electricity and the transmission of electricity would continue to be subject to tion of electricity and the transmission of electricity would continue to be subject to state (distribution) and federal (transmission) regulation, while generation (wholestate (distribution) and federal (transmission) regulation, while generation (wholesale competition) and retail supply (retail competition) would become competitive. sale competition) and retail supply (retail competition) would become competitive. To support this restructuring program, a number of regulatory and organizational To support this restructuring program, a number of regulatory and organizational changes were made or planned to create and manage wholesale power markets, changes were made or planned to create and manage wholesale power markets, transmission networks, and retail competition in an effi cient manner. transmission networks, and retail competition in an effi cient manner. These reforms spread quickly during the late 1990s. Then came the CaliThese reforms spread quickly during the late 1990s. Then came the California Electricity Crisis (or the Western Electricity Crisis) of 2000–2001 ( Joskow fornia Electricity Crisis (or the Western Electricity Crisis) of 2000–2001 ( Joskow 2001; Borenstein 2002). The political reaction to this crisis put a virtual halt on 2001; Borenstein 2002). The political reaction to this crisis put a virtual halt on additional states adopting restructuring and associated retail competition reforms. additional states adopting restructuring and associated retail competition reforms. It also slowed efforts by the Federal Energy Regulatory Commission (FERC) to It also slowed efforts by the Federal Energy Regulatory Commission (FERC) to push forward its agenda to bring organized wholesale markets, integrating the push forward its agenda to bring organized wholesale markets, integrating the effi cient dispatch and pricing of generation supplied at different locations with effi cient dispatch and pricing of generation supplied at different locations with the effi cient allocation of scarce transmission capacity, to the entire country. the effi cient allocation of scarce transmission capacity, to the entire country. FERC’s efforts to rationalize the balkanized ownership and operation of transmisFERC’s efforts to rationalize the balkanized ownership and operation of transmission facilities by creating Regional Transmission Authorities (RTO) managed by sion facilities by creating Regional Transmission Authorities (RTO) managed by Independent System Operators (ISOs) were also constrained. Today about oneIndependent System Operators (ISOs) were also constrained. Today about onethird of the population has access to competitive retail supply alternatives, and third of the population has access to competitive retail supply alternatives, and