this post was submitted on 28 Jul 2024
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Explain Like I'm Five
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I’m no expert, but I might be able to help. Generally and historically in the U.S. one electric company (often called power companies) would handle the entire operation for a local area. They own the generators, long distance transmission lines, and the “last mile” connection to consumers, whether residential, commercial, or industrial. These are expensive systems to build so it doesn’t really make sense to have more than one company providing this service to an area. The power companies are granted a monopoly for whatever area they serve by the state, but in return they are also closely regulated by the state for the business side of the operation, such as how much they can charge for electricity but also making sure they have enough generation capacity and that the distribution system is adequately maintained. They are also regulated by the federal government to make sure they meet technical standards for compatibility. The regulation ensures the companies make a profit by try to keep it relatively small since electricity is a basic necessity. Power company stocks are generally considered a stable, reliable investment. They won’t necessarily grow much, but they should always make a profit.
Each power company is responsible for their own area and the network they operate, often called a grid. However, for resilience they’re usually connected to neighboring grids so that they can get extra electricity if needed. This isn’t free; they will have to buy the electricity from the neighboring grid but it will probably be at a discounted rate. They might also sell electricity to a neighboring grid, of course. I don’t know why they aren’t all just connected to each other in one big grid, though.
So in an area its almost completely vertically integrated? Wow.
Historically, yes. But the prices are generally not bad compared to what I’ve heard in other countries. For instance, the main power utility near me for residential service charges a base fee of $14/month to be connected to the grid and 11.661¢/kWh ($0.11661/kWh). There are some exceptions to this, of course. I actually live in a small town that for whatever reason has historically operated its own electric utility. They maintain the local grid and connections to homes but don’t have generators. They buy the electricity from the previously mentioned utility at a wholesale rate of around 6.5¢/kWh and we as customers pay 10.4¢/kWh. Our base connection fee is closer to $25/month but that also covers our water and sewer connection and trash (including yard waste) and recycling collection. Our town has a good solar energy program, though, so a lot of homes have put solar panels on their roof and there have been days where the town has generated 100% of its electricity from solar panels in the town.
There are some areas that have gone for a more “deregulated” approach where customers have a choice of who they pay for their electricity. I’m not sure how that really works, though, since I don’t think companies are out there building additional electric lines for their customers. Texas is one of the main places I can think that has done this but it seems like the companies have made higher profits for themselves while lowering prices by not maintaining the grid. I have a friend who lives in Texas and he’s always complaining about losing power randomly. I think California was trying to do something similar a long time ago but I’m not sure they’re doing that anymore. That was tied to the whole Enron debacle. I can recommend a book called Conspiracy of Fools by Kurt Eichenwald for more on Enron; it’s not Explain Like I’m Five but still pretty easy to follow even if you don’t understand the accounting concepts they ignored.
A mutual cable / network provider sounds good. How many houses does it cover?
In New Zealand / UK / Spain the network company provides the cables and connections to consumers and retailers/generators who all pay to connect then customers buy their electricity from the chosen retailers - The network companies are relatively large regional operations that are eithe private for profit of trusts (as opposed to coops) all are regulated for a return on capital invested.
With rooftop solar how does the network provider get on balancing demand ? I guess your provider buys electricity at night and sells during the day?