This section describes (1) electricity generation and consumption in the United States, (2) federal and state actions that have influenced electricity generation and consumption, (3) electricity reliability, and (4) federal and state regulation. The electricity system includes four distinct functions: generation, transmission, distribution, and system operations (see fig. 1). Electricity may be generated at power plants by burning fossil fuels; through nuclear fission; or by harnessing renewable sources such as wind, solar, geothermal energy, or hydropower. Once electricity is generated, it is sent through the electricity grid, which consists of high-voltage, high- capacity transmission systems, to areas where it is transformed to a lower voltage and sent through the local distribution system for use by industrial, commercial, residential, and other consumers.process, system operations are managed by a system operator, such as a local utility, that must constantly balance the generation and consumption of electricity. To do so, system operators monitor electricity consumption from a centralized location using computerized systems and send minute-by-minute signals to power plants to adjust their output to match changes in consumption. Various federal and state actions have influenced electricity generation. Regarding federal actions, in April 2015, we found that from fiscal year 2004 through 2013, federal programs aided the development of new electricity-generating capacity through various means, including outlays, loan programs, and tax expenditures. In more recent years, federal actions have been targeted toward renewable sources such as wind and solar, although there has also been federal support for coal, nuclear, and natural gas-fueled generation. For example, two tax credits—the Production Tax Credit (PTC) and the Investment Tax Credit (ITC)—and a related program that provided payments in lieu of these tax credits supported wind and solar electricity by lowering the costs associated with electricity generation and providing an incentive to those firms engaged in the construction and operation of wind and solar projects. The Department of the Treasury estimated that these two tax credits resulted in almost $12 billion in revenue losses for the federal government from fiscal year 2004 through 2013. In addition, the related payment program provided almost $17 billion in outlays from fiscal year 2004 through 2013. EIA recently estimated that wind, solar, and other renewables, accounted for about 72 percent of all electricity-related direct federal financial interventions and subsidies in fiscal year 2013. Regarding state actions, our April 2015 report found that key state supports aided the development of electricity generation projects— particularly renewable ones—in most states, from fiscal year 2004 For example, we found that as of September 2014, 38 through 2013.states and the District of Columbia had established renewable portfolio standards or goals.service providers obtain a minimum portion of the electricity they sell from renewable sources, creating additional demand for renewables. Retail service providers meet these requirements in various ways, such as by building renewable generating capacity or purchasing renewable generation from other producers through long-term contracts known as power purchase agreements. Such policies mandate or set goals that retail Federal and state activities have also encouraged energy efficiency, which can reduce the consumption of electricity. For example, Treasury estimated that energy-efficiency-related federal tax expenditures, such as for household energy efficiency improvements and the purchase of energy efficient equipment, amounted to over $15 billion in forgone revenue for the federal government from fiscal year 2000 through 2013. State governments have also played an important role in encouraging energy efficiency. According to the American Council for an Energy- Efficient Economy, as of April 2014, 25 states had fully funded policies in place that establish specific energy savings targets that utilities or nonutility program administrators must meet through customer energy efficiency programs. In March 2014, we found that the federal government has also made efforts to facilitate activities that encourage customers to reduce demand when the cost to generate electricity is high, known as demand-response activities. These efforts have included actions to fund the installation of advanced electricity meters that facilitate these demand-response activities, as well as regulatory efforts to encourage demand-response activities. Specifically, Treasury estimated that forgone revenue associated with the credit for energy efficiency improvements to existing homes amounted to $10.36 billion, the credit for residential energy efficiency property amounted to $3.08 billion, and the exclusion of utility conservation subsidies amounted to $2.04 billion from fiscal 2000 through 2013. easily and inexpensively stored, electricity generated must be matched with demand, which varies significantly depending on the time of day and year. To maintain a reliable supply of electricity, system operators take steps to ensure that power plants will be available to generate electricity when needed. In doing so, system operators typically ensure available capacity exceeds estimated demand so that any unexpected increases in demand or power plant or transmission outages can be accommodated without consumers losing access to electricity. Maintaining a reliable supply of electricity is a complex process requiring the system operator to coordinate three broad types of services as follows: Capacity: Operators procure generating capacity—long-term commitments to have available specific amounts of electricity- generating capacity to ensure that there will be sufficient electricity to reliably meet expected future electricity needs. Procuring capacity may involve operators of power plants committing that existing or new power plants will be available to generate electricity in the future, if needed. Energy: Operators schedule which power plants will generate electricity throughout the day—referred to as energy scheduling—to maintain the balance of electricity generation and consumption. Ancillary services: Operators procure several ancillary services to maintain a reliable electricity supply. Ancillary services generally involve resources being available on short notice to increase or decrease their generation or consumption. These and other services are needed to ensure supply and demand remain in balance so that electricity can be delivered within technical standards—for example, at the right voltage and frequency—to keep the grid stable and to protect equipment that needs to operate at specific voltage and frequency levels. Responsibility for regulating electricity prices is divided between the states and the federal government. Most electricity consumers are served by retail markets that are regulated by the states, generally through state public utility commissions or equivalent organizations. As the primary regulator of retail markets, state commissions approve many aspects of utility operations, such as the siting and construction of new power plants, as well as the prices consumers pay and how those prices are set. Prior to being sold to retail consumers, electricity may be bought, sold, and traded in wholesale electricity markets by a variety of market participants, including companies that own power plants, as well as utilities and other retail service providers that sell electricity directly to retail consumers. Wholesale electricity markets are overseen by the Federal Energy Regulatory Commission (FERC). During the last 2 decades, some states and the federal government have taken steps to restructure electricity markets with the goal of increasing competition. The electricity industry has historically been characterized by utilities that were integrated and provided the four functions of electricity service—generation, transmission, distribution, and system operations— to all retail consumers in a specified area. In much of the Western, Central, and Southeastern United States, retail electricity delivery continues to operate under this regulatory approach, and these regions are referred to as traditionally regulated regions. In parts of the country where states have taken steps to restructure retail electricity markets, new entities called retail service providers compete with utilities to provide electricity to retail consumers by offering electricity plans with differing prices, terms, and incentives. Beginning in the late 1990s, FERC took a series of steps to restructure wholesale electricity markets, and wholesale electricity prices are now largely determined by the interaction of supply and demand rather than regulation. In addition, FERC encouraged the voluntary creation of new entities called Regional Transmission Organizations (RTO) to manage regional networks of electric transmission lines as system operators—functions that had traditionally been carried out by local utilities. In addition to its role in regulating aspects of the electricity market, FERC is also responsible for approving and enforcing standards to ensure the reliability of the bulk power system—generally the generation and transmission systems. FERC designated the North American Electric Reliability Corporation (NERC) to develop and enforce these reliability standards, subject to FERC review. These standards outline general requirements for planning and operating the bulk power system to ensure reliability. For example, one reliability standard requires that system planners plan and develop their systems to meet the demand for electricity even if equipment on the bulk power system, such as a single generating unit or transformer, is damaged or otherwise unable to operate. According to our analysis of SNL data, the mix of energy sources used to generate electricity has generally shifted to include more natural gas, wind, and solar, but less coal and nuclear, from 2001 through 2013, though the extent of these changes varied by region. Growth in electricity consumption has generally slowed, with key differences among different types of consumers and regions. Natural gas, wind, and solar sources provided larger portions of the nation’s electricity mix from 2001 through 2013 in terms of both generating capacity and actual generation, while coal and nuclear sources provided smaller portions, according to our analysis of SNL data (see fig. 2). At the time of our analysis, 2013 was the most recent year with complete data for both generating capacity and generation. The growth or decline in specific energy sources varied over this time period and across U.S. regions. (See app. III for additional information on electricity-generating capacity and actual generation by region.) SNL data on power plants under construction and planned for retirement suggest that these recent trends are likely to continue. Generating capacity and actual generation from natural-gas-fueled power plants increased across the nation from 2001 through 2013, with different regions seeing varying levels of growth, according to our analysis of SNL data. Natural-gas-fueled generating capacity increased by about 181,000 MW during this period, and accounted for 72 percent of the new generating capacity added from all sources.capacity resulted from the construction of about 270,000 MW during this period offset by a smaller amount of retirements.