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Competitive Electricity Market Regulation in the United States: A Primer

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Francisco Flores -Espino, Tian Tian, Ilya Chernyakhovskiy, Megan Mercer, Mackay Miller
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The electricity system in the United States is a complex mechanism where different technologies, jurisdictions and regulatory designs interact. Today, two major models for electricity commercialization operate in the United States. One is the regulated monopoly model, in which vertically integrated electricity providers are regulated by state commissions. The other is the competitive model, in which power producers can openly access transmission infrastructure and participate in wholesale electricity markets. This paper describes the origins, evolution, and current status of the regulations that enable competitive markets in the United States. The first section reviews the entities and infrastructure that comprise the U.S. electric system. The second section describes the vertical integration regulatory paradigm in the electric utility industry and the motivations that lead regulators to introduce competition. The third section shows the basic underpinnings of electricity markets in the United States and describes the different products traded in those markets. The fourth and final section describes resources that have relatively short histories—demand response (DR) and variable energy resources—and their integration in existing wholesale markets. Finally, annexes present three cases in which some of the concepts presented in the report have been implemented.