The regulated electric utility model served the industry and U.S. consumers well for nearly a century. Costs and prices fell nearly continuously, and service expanded to nearly every corner of the U.S. While other countries experimented with their own regulatory systems, for the most part, these involved national electric utilities, not the regulated private enterprises found in the United States.
Beginning in the 1970s, the trend of falling prices suddenly reversed, and the decades of technological progress in power generation slowed. The rapid pace of technological advance had masked some fundamental problems with the way in which electric utilities were regulated. Dissatisfaction among electricity consumers grew, paving the way for the grand experiments in electricity deregulation and restructuring that continue to this day. This lesson and the following lesson will provide an in-depth discussion of how these new markets are structured and will describe some fundamental changes in how the price of electricity is determined. The basic market concepts will be discussed in this lesson, while the next lesson will examine how these markets are changing in response to the emergence of large-scale renewable power generation.
Learning Outcomes
By the end of this lesson, you should be able to:
- Discuss topics related to regulation and deregulation in the electricity industry
- Explain which segments of the electricity industry have been “deregulated” and which have been “restructured”
- Explain what a Regional Transmission Organization is, and how it is different from an electric utility
- Calculate the “system marginal price” for a pool-type electricity market
- Calculate “locational marginal prices” in a simple two-node electricity system with congested transmission lines
Reading Materials
- The National Energy Technology Laboratory has created a nice series of primers on each of the regional electricity markets in the United States. You can download the ZIP file here: NETL series of primers.
- Lessons Learned from Electricity Market Liberalization, by Paul Joskow (2008) in the Energy Journal. This paper has some descriptions of electricity deregulation efforts throughout the world.
Measuring the Benefits and Costs of Regional Electric Grid Integration, by Seth Blumsack (2007) in the Energy Law Journal. The first couple of sections of the paper contain an overview of electricity restructuring in the U.S.
Interview with Trevor Lauer (2023) (32:44)
Please watch the following video interview. Once the video begins to play, you can access the transcript for this video by choosing the transcript icon, to the right of the magnifying glass icon, in the upper right corner of the video player.
Video interview with Trevor Lauer.Interview with T. Lauer by M. Kleinginna © Penn State is licensed under CC BY-NC-SA 4.0Interview with Trevor Lauer (2026) (22:07)
Please watch the following video interview. Again, once the video begins to play, you can access the transcript for this video by choosing the transcript icon, to the right of the magnifying glass icon, in the upper right corner of the video player.
Video interview with Trevor Lauer.Interview with T. Lauer by M. Kleinginna © Penn State is licensed under CC BY-NC-SA 4.0
What is due for Lesson 11?
This lesson will take us one week to complete. Please refer to the Course Calendar in Canvas for specific due dates. Specific directions and grading rubrics for assignment submissions can be found in the Lesson 11 module in Canvas.
- Complete all of the Lesson 11 readings and viewings, including the lesson content
- Complete Quiz 8
- Project work - No deliverables this week
Questions?
If you have any questions, please post them to our Questions? discussion forum (not email). I will not be reviewing these. I encourage you to work as a cohort in that space. If you do require assistance, please reach out to me directly after you have worked with your cohort --- I am always happy to get on a one-on-one call, or even better, with a group of you.