How The Electricity Grid Works: Interconnection Zones, Regional Uniqueness, Local Utilities

While there is widespread agreement that electricity prices will continue to rise in the coming years, the impact of these increases will vary across the country.This is because electricity prices are ultimately set and paid at the local level.

Zooming In: From Interconnection Zones to Utility Markets

The U.S. electricity market is a geographically diverse market with multiple states larger than medium sized countries.

The continental U.S. incudes three major interconnection zones (see chart below). The Western Interconnection, covering states in and west of The Rockies; ERCOT in Texas which operates its own isolated grid; and The Eastern Interconnection, which includes all other states.

The three interconnection zones are comprised of regional transmission organizations (RTOs) and independent system operators (ISOs) which coordinate and monitor grid operations (shown in the map below).

The RTOs/ISOs in the Eastern Zone are interconnected to each other, as are the RTOs/ISOS in the Western Zone. Additionally, they are each connected to Canada, as well.

Moving beyond the interconnection zones and RTOs / ISOs, the next layers of the electricity market operate at the state and local utility levels.

At the local utility level, there are significant differences in how electricity is sourced, delivered and priced. Across the U.S., more than 3,000 electric utilities operate, including investor-owned, municipal and cooperative utilities.

Investor owned utilities supply around 75% of all customers nationwide, while municipal and cooperative utilities serve the remainder.