When you flip a switch, power from your distribution utility flows through cables to your devices. For utilities, delivering power to your home is more complicated than plugging in to an outlet.
To meet consumer demand for reliable, affordable and safe power, utilities have contracts with energy markets that source electricity. Through these markets, utilities can buy power generated by multiple sources. While some utilities may generate a portion of their power, being connected to a power market helps maintain reliability and ensure access to cost-effective power throughout the year. Finding and acquiring electricity is complicated, and accounting for an entire electric grid requires employees who are skilled at balancing supply and demand—from generation to transmission to distribution.
How utilities buy power is not like how we buy eggs. Buying and receiving power requires a complex system.
In some places, such as California, utilities buy power on the power grid the same way big banks and Wall Street firms buy stocks or bonds: through a centralized market. The California Independent System Operator oversees the state’s energy market to ensure as much energy is being sold onto the grid as is being consumed.
These markets are effectively auctions. Power-generating plants can go to the CAISO market and say, “We will sell X units of energy for $Y.” The market sees who is offering the most affordable power prices, and buys it for the grid.
Buying on the market allows utilities to use a variety of generators, including hydropower, solar, biomass or any other type of power on the market’s grid. This means the utility can pick between generators that are competing on price, rather than being locked into a single source.
Lassen Municipal Utility District in northeast California buys its power through Western Area Power Administration. WAPA is a division of the Department of Energy, which, among other things, can buy and provide power to utilities. Using both short- and long-range forecasts, WAPA tracks how much power its clients need and pays various generators to put that much load onto the grid. At the end of the month, it looks at how much power was used and the generating costs, and allocates them proportionally.
“Our WAPA bill is usually 30 to 50 pages long,” says LMUD Business Manager Nick Dominguez.
Not all areas use the clearinghouse markets described above. A different approach is taken in the Pacific Northwest.
“It’s all bilateral. It’s a relationship business,” says Jeff Kugel, director of power supply for PNGC Power.
A bilateral market means deals are made directly between two parties, rather than through a clearinghouse, such as CAISO.
PNGC Power is a generation and transmission cooperative. It makes sure its 16 distribution cooperative members are provided with electricity.
“Bilateral is literally just calling someone you know,” Jeff says.
Often, that someone is the Bonneville Power Administration. BPA has roughly 65% of the region’s power-generating capacity, largely through the Federal Columbia River Power System. Many utilities have “load following” contracts with BPA, meaning BPA provides the utility’s full power load. Every two years, BPA—a nonprofit government entity—produces a rate case, where it projects all the power it will produce, plus the power needed by its customers. Prices are set accordingly in agreement with those customers.
Other BPA contracts include blocks and slices for a set amount of energy and a percentage of available BPA generation, respectively.
“Once the rate case is done, BPA knows what you’re obligated to provide them, and then they take care of everything in real time,” Jeff says of the BPA contracts.
After a utility buys power, it has to receive it. Moving the energy around is called transmission, typically done through high-voltage power lines. BPA operates about 80% of the Northwest’s transmission lines, with more than 15,000 miles of line connecting to utilities throughout the region.
Other generators can connect to BPA’s transmission lines to deliver power. When PNGC Power buys additional electricity for its member utilities, it does not take the power all the way from generator to the utility but delivers it to BPA’s lines, which then connect to the utility.
“The good thing about electricity is it travels at the speed of light, so if you have transmission, you can call anybody and get it,” Jeff says.
Having that transmission is important. Lassen MUD is in the final stages of construction of a new substation that will connect it to NV Energy’s transmission lines. This not only doubles the utility’s resilience—making it no longer reliant on a single connection to the California grid—but also gives the utility access to potentially more affordable energy markets.
The amount of energy generated needs to match the amount consumed at all times. If enough energy is not generated, there won’t be enough to go around. Too much energy can damage equipment, similar to how surges can fry electronics.
Making sure enough power is on the lines at any time is called balancing. Because keeping transmission equipment working is the highest priority, regions have balancing authorities. BPA serves the role for the Northwest.
Power balancing looks at electricity frequencies. Transmission lines use alternating current at 60 hertz, meaning the direction of movement changes 60 times per second. When there is too little power on the line, the frequency drops. Balancing authorities recognize the change in frequency and change the amount of power generated to stabilize the system.
Buying and receiving power is complex. Ensuring generation keeps up with consumption and transmitting energy to utilities is a difficult balancing act. At the end of the day, the hard work of multiple entities results in providing consumers with electricity at the flip of a switch.