How the Electricity Grid Works

Published Feb 17, 2015

Table of Contents

The electricity grid is a complex and incredibly important system, and one of the most impressive engineering feats of the modern era. It transmits power generated at a variety of facilities and distributes it to end users, often over long distances. It provides electricity to buildings, industrial facilities, schools, and homes. And it does so every minute of every day, year-round.

What makes up the electricity grid?

Our nation’s electricity grid consists of four major components, each of which is detailed below.

Individual generators

A variety of facilities generate electricity, including coal- and natural gas-burning power plants, hydroelectric dams, nuclear power plants, wind turbines, and solar panels. The location of these electricity generators – and their distance from end users – varies widely.

These technologies are also physically different, and are used and manipulated differently on the power grid as a result. For example, certain types of power plants, such as coal and nuclear power plants, have little short-term flexibility in adjusting their electricity output; it takes a long time to ramp up or down their electricity output [1].

Other plants, such as natural-gas fired plants, can be ramped up very quickly, and are often used to meet peaks in demand. More variable technologies, such as wind and solar photovoltaics, are generally used whenever they are available, in large part because their fuel – sunlight and wind – is free.

At any given time, there is also always a “reserve margin,” a specified amount of backup electricity generating capacity that is available to compensate for potential forecasting errors or unexpected power plant shutdowns. Electricity demand, supply, reserve margins, and the mix of electricity generating technologies is constantly monitored and managed by grid operators to ensure that everything runs smoothly.

Electricity generators are owned by electric companies, or utilities, which are in turn regulated by the state’s Public Utility Commission (PUC) or the Public Service Commission (PSC). PUCs and PSCs are independent regulatory agencies appointed by the state legislature. Generators can only be built with approval from the PUC or PSC, and these agencies set appropriate electricity rates within their state that the utilities must abide by [2].

Transmission lines

Transmission lines are necessary to carry high-voltage electricity over long distances and connect electricity generators with electricity consumers.

Transmission lines are either overhead power lines or underground power cables. Overhead cables are not insulated and are vulnerable to the weather, but can be less expensive to install than underground power cables. Overhead and underground transmission lines are made of aluminum alloy and reinforced with steel; underground lines are typically insulated [3].  

Transmission lines carry high voltages because it reduces the fraction of electricity that is lost in transit – about 6% on average in the United States [4]. As electricity flows through the wires, some of it dissipates as heat through a process called resistance. The higher the voltage is on a transmission line, the less electricity it loses. (Most of the electric current flows close to the surface of the transmission line; using thicker wires would have minimal impact on transmission losses.)

Transmission-level voltages are typically at or above 110,000 volts or 110 kV, with some transmission lines carrying voltages as high as 765 kV [5]. Power generators, however, produce electricity at low voltages. In order to make high-voltage electricity transport possible, the electricity must first be converted to higher voltages with a transformer.

These high voltages are also significantly greater than what you need in your home, so once the electricity gets close to end users, another transformer converts it back to a lower voltage before it enters the distribution network.

Transmission lines are highly interconnected for redundancy and increased reliability of electricity supply, as this map of U.S. transmission lines shows. There are three main transmission networks across the United States: the Western Interconnection, the Eastern Interconnection, and the Electric Reliability Council of Texas (ERCOT).

Like electricity generators, transmission lines must be approved by the state (PUCs or PSCs) before being built. However, wholesale electricity transactions, which are made between regional grid operators, are regulated by a national agency called the Federal Energy Regulatory Commission (FERC) [6].

FERC regulates the electricity grid on a larger scale than PUCs and can resolve disputes among different market participants on the grid. Transmission networks are sometimes managed by utilities, but some networks are managed by separate entities known as Independent System Operators (ISOs) or Regional Transmission Organizations (RTOs). These companies facilitate competition among electricity suppliers and provide access to transmission by scheduling and monitoring the use of transmission lines.


The distribution network is simply the system of wires that picks up where the transmission lines leave off. These networks start at the transformers and end with homes, schools, and businesses. Distribution is regulated on the state level by PUCs and PSCs, who set the retail rates for electricity in each state.

Consumer use or “load”

The transmission grid comes to an end when electricity finally gets to the consumer, allowing you to turn on the lights, watch television, or run your dishwasher. The patterns of our lives add up to a varying demand for electricity by hour, day, and season, which is why the management of the grid is both complicated and vital for our everyday lives.

The evolution of the electricity grid

The electricity grid has grown and changed immensely since its origins in the early 1880s, when energy systems were small and localized. During this time, two different types of electricity systems were being developed: the DC, or direct current, system, and the AC, or alternating current, system [7, 8]. Competition between these two systems was fierce. Competing electric companies strung wires on the same streets in cities, while electric service for rural areas was ignored.

Despite a campaign by Thomas Edison to promote the direct current system, businessman George Westinghouse and inventor Nikola Tesla won the support of electric companies for the alternating current system, which had the distinct advantage of allowing high voltages to be carried long distances and then transformed into lower voltages for customer use [9].

As the electricity system grew, the advantages of AC allowed utility companies to build grids over larger areas, creating economies of scale. To stabilize the business environment, the utilities sought a “regulatory compact” granting them monopoly status from state governments, and placing limits on how rates would be set for customers. From roughly 1920 to 1980, that approach was locked in place. Under this structure, utilities controlled every aspect of the electricity grid, from generation to distribution to the customer.

With the energy crisis of the 1970s [10], however, Congress changed this structure to allow wholesale competition in electricity production; facilities that produced power more efficiently or used renewable energy could enter the marketplace, while the transmission operators (ISOs and RTOs) maintained a monopoly over the management of the grid – a change known as “restructuring.”

This led 17 states, plus the District of Columbia, to restructure the management of the electricity grid, allowing customers to buy electricity from competitive retail suppliers [11]. Many states, however, remain “vertically structured” meaning that all aspects of the electricity grid are managed by the same company.

The importance of effective grid transmission

The interconnected and complex nature of the electricity grid delivers several benefits [12], including:

  • Reliability: Since the grid is an enormous network, electricity can be deployed to the right places across large regions of the country. The large transmission network allows grid operators to deal with anticipated and unanticipated losses, while still meeting electricity demand.
  • Flexibility: The electricity grid allows a power system to use a diversity of resources, even if they are located far away from where the power is needed. For example, wind turbines must be built where the wind is the strongest; the grid allows for this electricity to be transmitted to distant cities.
  • Economic competition: Because the grid allows multiple generators and power plants to provide electricity to consumers, different generators compete with each other to provide electricity at the cheapest price. The grid also serves as a form of insurance – competition on the grid protects customers against fluctuations in fuel prices.

A historic blackout in 2003 showcased why effective grid transmission is so important. On August 14, 2003, an Ohio power company set off the largest blackout in human history simply due to human error [13]. The blackout spread across New York, Pennsylvania, Connecticut, Massachusetts, New Jersey, Michigan, and even parts of Canada. Offices had to be evacuated, and thousands of people flooded hospitals suffering from the heat [14]. Our electricity grid has come a long way since 2003, but many more opportunities exist for improvement.

New opportunities on the grid

The electricity grid is a dynamic system. It has changed and evolved rapidly over the last century to accommodate new technologies, increases in electricity demand, and a growing need for reliable, diverse sources of electricity. Even on an hourly basis, the grid is changing, with different sources of electricity being manipulated to satisfy demand at the least cost. 

As technology changes and better options become available, significant improvements could be made to the electricity grid.

For example, energy storage technologies could allow electricity to be stored for use when demand for electricity peaks or increases rapidly, increasing efficiency and reliability. Newer, more advanced meters such as self-programming thermostats will allow better data collection for more effective management and faster response times. Even vehicles could play a role, as smart charging can allow electric cars to interface with the electric grid. 

Distributed generation systems, such as solar panels on individual homes, reduce the distance that electricity has to travel, thereby increasing efficiency and saving money. Investments made by consumers – such as purchasing energy-efficient appliances, constructing more energy-efficient buildings, or installing solar panels – save customers money and utilize energy more efficiently at the same time.


[1] Union of Concerned Scientists (UCS). 2013. Ramping Up Renewables. Cambridge, MA.

[2] Center for Culture, History, Environment (CHE) at the Nelson Institute. A CHE Primer on Energy: Regulation 101. University of Wisconsin-Madison. Accessed August 2, 2013.

[3] Electric power transmission. Wikipedia. Accessed August 2, 2013.

[4] Energy Information Administration (EIA). 2012. How much electricity is lost in transmission and distribution in the United States? Frequently Asked Questions. Washington, DC. Accessed February 18, 2015.

[5] Electric power transmission. Wikipedia. Accessed August 2, 2013.

[6] Dennis, J. 2013. Electric Transmission 101: Regulation. Office of Energy Policy and Innovation, Federal Energy Regulatory Commission.

[7] URN: An energy journal. 2012. The Electric Grid: A History. American Public Media and SoundVision Productions.

[8] Brain, M., Harris, W., Lamb, R., 2013. How Electricity Works. How Stuff Works, Inc.

[9] Galli, W. 2013. Electric Transmission 101: Operational Characteristics. Clean Line Energy Partners LLC.

[10]  The History Chanel. The Energy Crisis (1970’s). Accessed August 1, 2013.

[11] Energy Information Administration (EIA). 2012. State and electric retail choice programs are popular with commercial and industrial customers. Washington, DC. Accessed August 1, 2013.

[12] Brown, M.H., Sedano, R.P., 2004. Electricity Transmission: A Primer. National Council on Electricity Policy (NCEL). Denver, CO.

[13] Perez-Pena, R. and Wald, M., 2003. Basic Failures by Ohio Utility Set off Blackout, Report Finds. The New York Times, New York, NY. Accessed August 2, 2013.

[14] Wald, M. July 31, 2013. New Tools for Keeping the Lights On. The New York Times, New York, NY. Accessed August 2, 2013. 

Related resources