USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner, Dennis W. Elsenbeck and Zachary R. Hirschfeld, Phillips Lytle LLP
RSOs and areas outside a regional operating authority The US wholesale market is comprised of seven regional, centralised RSOs, and a patchwork of decentralised geographic areas that operate outside a defined, regional operating authority. FERC has encouraged the creation of RSOs, which dispatch generation as necessary and have opera- tional control, but not ownership, of transmission assets necessary to administer wholesale markets. RSOs are required to maintain operation of the grid (among other things), and are subject to enforcement by the North American Electric Reliability Corporation (NERC), which is the FERC-designated electricity reli- ability organisation of the USA. The seven RSOs serve roughly two thirds of the USA. Certain states in the South, Mountain West and North- west did not join an RSO and continue to operate independently through individual utility control areas where wholesale sales are made on a competitive basis primarily by power purchase agreements and bilateral contracts. The utilities in these control areas remain subject to certain aspects of FERC’s jurisdic- tion, and individual control area operators must co- ordinate among themselves to ensure region-wide service reliability. Certain service jurisdictions located in regions not within RSO regions have recently joined a quasi-RSO wholesale market called the Energy Imbalance Market. Locational marginal pricing In the seven RSO regions, wholesale prices are set by the centralised market using locational marginal pricing (LMP). LMP sets the marginal cost of energy for certain locations (or nodes) based on the opera- tional characteristics of the nodal transmission system itself, incorporating the financial value of congestion, energy losses and the actual energy being transmit- ted. Security-constrained economic dispatch ensures that least-cost energy is provided to each node based on operational, reserve and transmission constraints to address reliability and system needs. Competitive auctions RSOs typically also run capacity markets outside the traditional wholesale energy market to ensure reli-
able service through competitive auctions. In capac- ity markets, generators will submit bids one year or more in advance to be paid for their willingness to provide electricity at any time within the year in order to meet peak demand. Certain sales may be made on a cost-of-service basis in limited circumstances where competition does not provide adequate price signals. In recent years, in part due to increasing load growth, capacity market prices have skyrocketed in some RSO jurisdictions. The key challenge for capacity markets is to keep auction prices low enough to protect rate- payers from escalating costs, which end up on utility bills, while keeping prices high enough to encourage new generation development, for which auction prices provide a reliable source of revenue. 2.2 Electricity Imports and Exports Transmission of electricity to a foreign country is regu- lated by FERC under Section 202 (e) of the FPA (16 USC Section 824a(e)). Upon application, FERC may grant an order to authorise the requested exporta- tion of electrical energy. The DOE has authority over emergency authorisations of electricity transmission (16 USC Section 824a(c)). Generally, electricity imported from a foreign country is not regulated by FERC or the DOE, but by the state within which the importing facility is located (16 USC Section 824a(f)). 2.3 Supply Mix of Electricity While renewable energy’s share of the total supply mix of electricity has increased significantly over recent years, fossil fuels still provide most of the supply. In 2025, the most prominent fossil fuel for electricity gen- eration was natural gas, which accounts for 41% of the United States’ supply mix; coal represented 17%. Zero emissions sources accounted for the remainder. Renewables, including solar, wind and geothermal represented 19% of supply in 2025; hydropower rep- resented 5%, while nuclear accounted for 18%. 2.4 Market Concentration Limits Role of FERC The wholesale market concentration of electricity supply is regulated by a number of federal govern- ment agencies, principally FERC. FERC ensures com-
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