EME 801
Energy Markets, Policy, and Regulation




The regulated electric utility model that we studied in Lesson 5 served the industry and 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:

  • 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.

Additional Readings

  • The National Energy Technology Laboratory has created a nice series of primers on each of the regional electricity markets in the United States. Registered students can access the series of Power Market Primers posted in a ZIP file in the Lesson 06 module.
  • “Lessons Learned from Electricity Market Liberalization,” by Paul Joskow, Energy Journal 2008. This paper has some descriptions of electricity deregulation efforts throughout the world. Registered students can access a PDF file in the Lesson 06 module.
  • “Measuring the Costs and Benefits of Regional Electric Grid Integration,” by Seth Blumsack, Energy Law Journal 2007. The first couple of sections of the paper contain an overview of electricity restructuring in the U.S. Registered students can access a PDF file in the Lesson 06 module.

What is due for Lesson 6?

This lesson will take us one week to complete. Please refer to the Course Calendar for specific due dates. See specific directions for the assignment below.

  • Homework: Submit a word-processed document with the answers to the Lesson 06 questions to the Lesson 06 Drop Box.
  • Discussion: Use the Lesson 06 Discussion forum to respond to the question about generation companies operating in regulated and deregulated environments. Please also respond to at least two of your classmates' posts.


If you have any questions, please post them to our Questions about EME 801? discussion forum (not email), located in the Start Here! module. I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.