Chapter 4
THE ELECTRICITY BUSINESS IN DEPTH
Like gas or water, electricity is a commodity. But electricity has characteristics that make it unlike any other: Electricity cannot be effectively stored or easily controlled, it can travel great distances almost instantaneously, and even a short disruption in supply can have devastating impacts. What’s more, electricity consumption changes rapidly, forcing electric power firms to carefully monitor consumption and adjust production on a minute-by-minute basis throughout the day.
With most other commodities, if supply exceeds demand, then excess can be put into inventory. And when demand outpaces readily available supply, those excess inventories can be drawn down to prevent shortages. But there is no cost-effective way to store large quantities of electricity, and if there is an imbalance between supply and demand, the whole system can crash—often with dire consequences.
Therefore, electricity requires a unique delivery system with plenty of spare capacity and a uniquely structured business. And because electricity is by far the most important commodity in the Utilities sector, we’ll take an entire chapter to cover the electric power business more in depth, including:
- Electricity customers and their demand drivers
- The regulatory structure of vertically integrated utilities
- Operation and economics of the electricity delivery system, including power generation, transmission, and retail distribution
THE CONSUMER: WHO USES ELECTRICITY? ...
