On July 12, we published “Building a Smarter Electric Grid: How Investing in Smarter Electricity Infrastructure Will Energize America,” a white-paper focused on the opportunities presented by a “smarter” electric network and the specific investments that should be made to take full advantage of tomorrow’s energy technologies without sacrificing the affordability and reliability of today’s. The paper and all its findings can be downloaded here.

In short, the grid of the future does not replace the existing network; rather, it builds upon the foundation we have by better accommodating distributed and renewable resources in a number of ways, including facilitating two-way flow of electrons in the distribution grid, improving real-time operator visibility into distributed generation patterns and customer demand, ensuring an efficient and reliable flow of energy to and from all points at all times, and more effectively taking advantage of intermittent resources through use of distributed energy storage technologies.

As a follow up, we thought it would be helpful to provide readers with more detailed background information on what “the grid” is, who oversees it, who regulates it, and what changes it is undergoing to accommodate new energy technologies. More specifically, what component parts make up “the grid,” the different regional grids and how they interconnect, who is responsible for overseeing the grid both for reliability and regulatory purposes, and what will change and what will stay the same as more distributed resources come online.

What is The Grid?
The U.S. electric grid is a highly complex interconnected network of power generating stations, transformers, transmission lines, substations, and distribution lines. In its entirety, this network is responsible for delivering safe, reliable, and affordable electricity to 159 million residential, commercial, and industrial customers across the country.[1] Commonly thought of as one integrated system, the grid is actually composed of three separate systems, referred to as interconnections across the U.S. (excluding Hawaii and Alaska). The Eastern Interconnection provides power to states east of the Rocky Mountains, the Western Interconnection covers the states from the Pacific Ocean to the Rocky Mountains, and the Texas Interconnected System provides power throughout the state of Texas.
Functionally, these interconnections are operated by thousands of electric providers ranging from municipalities and electric cooperatives to investor-owned utilities, independent power producers, and federal power agencies. The power generated by these entities takes a complex path to the ultimate end-user.

  • First, upon generation the power passes through transformers to “step-up” or increase voltage for long-range transmission;
  • Next, the power is transmitted over high-voltage transmission lines where it is delivered to substations, where transformers “step down” or reduce voltage, preparing power for distribution;
  • Then, the power is sent through the distribution network in multiple directions where it will pass through a complex series of circuits, switches, and additional transformers; and
  • Finally, the power is delivered to the end-user – an industrial, commercial, or residential consumer.

Grid Oversight & Management
Public and private utilities and other power providers are responsible for producing and delivering power, and maintaining and upgrading their assets, i.e., generation facilities, transformers, and transmission and distribution lines, as necessary to meet their obligations to consumers. Multiple governmental and quasi-governmental entities exist to facilitate this process and ensure the electric grid serves its intended purpose.
At the bulk-system level[2], the most important of these entities are the Federal Energy Regulatory Commission (FERC), the North American Electric Reliability Corporation (NERC), and seven Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) – California ISO, Electric Reliability Council of Texas, Southwest Power Pool, Midcontinent ISO, PJM, New York ISO, and New England ISO.
• FERC[3] is the U.S. federal regulatory body responsible for regulating interstate transmission of electricity and ensuring wholesale rates are just and reasonable. The Commission’s mission is to “[a]ssist consumers in obtaining reliable, efficient and sustainable energy services at a reasonable cost through appropriate regulatory and market means.” FERC serves primarily as an economic and reliability regulator, providing an important oversight role in ensuring that NERC, the RTOs and ISOs, and utilities subject to FERC jurisdiction are effectively carrying out their respective responsibilities
• NERC is an intercontinental non-profit corporation responsible for assuring the reliability and security of the bulk power system across North America.[4]
• RTOs and ISOs manage specific regional transmission systems. They are third-party independent grid operators that serve multiple purposes, including providing fair transmission access to all generators to facilitate competition, provide transaction support, and engage in regional planning to ensure that the right infrastructure gets built in the right place, at the right time.,[5],[6]

This regional approach improves reliability and coordination compared to what would otherwise be a piecemeal utility-by-utility approach, whereby power would need to cross numerous individual utility areas, potentially increasing costs for consumers.
The distribution system is equally complex and equally important. While the bulk power system’s purpose is to reliably provide sufficient power to distribution substations,[7] the distribution system is responsible for reliably delivering power directly to the end-user when and where they need it. [8] Consequently, similar to the bulk system, there are a number of state and local bodies responsible for regulating and overseeing downstream power delivery.
The distribution utility’s role, whether they are an investor-owned utility, municipal utility, or electric cooperative, is to produce and/or deliver power directly to their consumers (the end-user). However, the regulatory body in charge of overseeing the retail utility, and methods by which retail rates are set, depend upon which type of legal entity the retailer is, and which state they operate in. For instance:
• Investor-Owned Utilities are regulated by state public utility commissions.
• Municipal and Cooperative Utilities are non-profit entities owned by cities and counties, or their cooperative memberships, respectively.
o Municipal Utilities are regulated by the local government entities they serve.
o Cooperatives are managed and overseen by a Board of Directors, which is typically democratically elected by the cooperative’s membership.
The Grid is Adapting to Technological Change
As the grid transforms from the traditional model (where centralized generation is transmitted and distributed directly to end-users) to a more complex model (where decentralized generation will move multi-directionally to and from consumers and other distributed resources), new technologies and new business models will emerge. This transformation will require the aforementioned regulators and system operators to reconsider the most efficient and effective way to manage bulk and distributed power systems. Further, utilities will need to make massive investments in additional foundational and intelligent infrastructure assets.
Traditional Electric Grid Model
The traditional electric utility model, devised on the premise that electricity could not be stored in large quantities and that it must be generated as it used, [9] is primarily a unidirectional system that depends on centralized utility-scale generation, from which electricity is transmitted long distances, routed through a substation, and distributed to customers.
To provide a sense of scale, the current electricity system consists of more than 3,300 electricity providers generating more than 4 terawatt-hours of electricity from 19,000 individual generators at roughly 7,000 power plants [10] delivered to customers across the U.S. through more than 642,000 miles of high voltage transmission lines and 6.3 million miles of distribution lines (see depiction below).[11]

Traditional Grid Model[12]

Building and managing generation and transmission assets requires extensive planning to ensure generation meets demand, determine what type of generation asset to build, and where to place their assets, including the aforementioned generation facilities and transmission lines, to ensure reliability and minimize power losses during delivery. [13] Providers must also account for the transformers needed to increase the voltage for efficient long-haul transmission from generation to the substation. [14] The movement of electricity also requires constant monitoring. NERC explains:

“[e]lectricity flows simultaneously over all transmission lines in the interconnected grid system in inverse proportion to their electrical resistance, so it generally cannot be routed over specific lines. This means generation and transmission operations in North America must be monitored and controlled in real time, 24 hours a day, to ensure a reliable and continuous supply of electricity to homes and businesses.”[15]

As elaborate as the electric grid is, recent and projected future increases in the deployment of advanced energy technologies will only increase the complexity of moving electricity from the source of generation to the end-user (and likely storing it somewhere in between).
Emerging Electric Grid Model
To accommodate new technologies a more dynamic system is emerging. The grid will continue to transmit and distribute central generation, but it will also better facilitate implementation of intermittent DER, which cannot be easily controlled like conventional distributed generation, such as backup diesel generators. Further, the grid will need to integrate several advanced energy technologies ranging from improved utility-scale storage capabilities and microgrids to advanced communications platforms that can share information among grid components in real time.

Emerging Grid Model[16]

Facilitating a wide range of advanced and emerging energy technologies requires significant alterations to fixed infrastructure. Distribution systems in particular will require upgrades to accommodate multidirectional flow, i.e., made capable of both drawing power from numerous distributed and traditional resources and delivering it to industrial, commercial, and residential users, or even other DER, in real time. In addition to the wires themselves, smart power inverters, which can transform Direct Current (DC) like that derived from power generation and turn it into Alternating Current (AC), which is used for residential appliances and vice versa, are needed to manage voltage depending on which way the power is flowing.
Facilitating the movement of power to and from these resources also requires that the grid “know” when to draw power from certain sources and deliver to others, and how to protect this information. Software upgrades are needed to increase behind the meter visibility and provide a secure communications network to enable communication between grid components, from generation to distribution and every step in between, while also protecting the system from cyber intrusions.[17] The U.S. Department of Energy explains:[18]

“This communication network will support the ability to monitor and control time-sensitive grid operations, including frequency and voltage; dispatch generation; analyze and diagnose threats to grid operations; fortify resilience by providing feedback that enables self-healing of disturbances on the grid; and evaluate data from sensors (such as phasor measurement units) that enable the grid to maximize its overall capacity in a dynamic manner.”

Advanced energy technologies are coming online all over the country at an ever-increasing pace. The economic, reliability, and environmental value of these resources are dependent upon how quickly investments can be made to update and improve hard infrastructure assets and components (e.g., distribution lines, transmission lines, advanced inverters, etc.) and deploy and integrate soft infrastructure systems, data, and related technologies (e.g., advanced energy analytics, control sensors and software, communications networks, etc.).

Moving Forward
The grid’s current ability to provide reliable, affordable baseload power to meet the country’s needs is an incredible feat. Moving forward, however, electricity sector policymakers and stakeholders can do more to overcome challenges and barriers to deploying and integrating new resources and technologies. Doing so will allow the system to evolve into a smarter, more resilient grid, with improved efficiencies on both the supply and demand sides of the power sector.

[1] See U.S. Department of Energy, “Quadrennial Energy Review Second Installment – An Integrated Study of the Electricity System”, pp. 3-3 to 3-4. (April 2015). This source defines “customer” as any entity consuming electricity at one meter, including factories, commercial entities and residences. As a basic rule of thumb, each residential electric meter serves 2.5 people.

[2] The bulk power system describes those assets necessary for operating an interconnected electric energy transmission network and electric energy needed to maintain transmission system reliability. The bulk power system does not include assets used in the local distribution of electricity. See Federal Power Act, 16 USC 824o(a)(1).

[3] Federal Energy Regulatory Commission, “About FERC”. Accessed January 3, 2017.

[4] See North American Electric Reliability Corporation.

[5] RTOs and ISOs are able to provide fair competition and ensure regional reliability through energy and, in some cases, capacity markets where suppliers can bid power they own or own the rights to into the system. These bids are considered by the RTOs and ISOs on a cost basis until enough power is acquired to meet regional demand.

[6] See ISO/RTO Council.

[7] U.S. Department of Energy, “Quadrennial Energy Review Second Installment – Transforming the Nation’s Electricity System”, Appendix A, p. A-6. (January 2017).

[8] Ibid.

[9] See North American Reliability Corporation, “Understanding the Grid”, (December 2012).

[10] “Power Plants” as used for this purpose are facilities with at least 1 MW of generating capacity.

[11] See American Public Power Association, 2015-2016 Annual Directory & Statistical Report, “U.S. Electric Utility Industry Statistics”, and U.S. Department of Energy, “Quadrennial Energy Review Second Installment – An Integrated Study of the Electricity System”, pp. 3-3 to 3-4. (April 2015).

[12] See U.S. Department of Energy, “Quadrennial Energy Review Second Installment – An Integrated Study of the Electricity System”, (April 2015) (Image sourced and adapted from North American Reliability Corporation.

[13] As a general rule, the further the power needs to travel from generation to the end user, the more electricity will be lost along the way (This is not always the case; especially in less populous states where the power can travel further on more efficient high-voltage transmission lines.) Depending on the state, power losses range from 2.2 percent to 13.3 percent during transmission and distribution alone. Inside Energy, Jordan Wirfs-Brock, “Lost in Transmission: How Much Electricity Disappears Between a Power Plant and Your Plug?”. Accessed January 5, 2017.

[14] See U.S. Department of Energy, “Large Power Transformers and the U.S. Electric Grid”, p. 5 (June 2012)

[15] North American Reliability Corporation, “Understanding the Grid”, (December 2012).

[16] Navigant Consulting, “The Energy Cloud, Emerging Opportunities on the Decentralized Grid”, p. 8 (2016).

[17] See U.S. Department of Energy, “Quadrennial Energy Review Second Installment – An Integrated Study of the Electricity System”, p. 3-5 (April 2015).

[18] Ibid.