Load serving entity (LSE) in a deregulated
electricity market
In a broad sense, an electricity market is a system that facilitates the exchange of electricity-related goods and services. During more than a century of evolution of the electric power industry, the economics of the electricity markets had u ...
is a company or government agency that is obligated by law or via a long-term contract to provide electrical power to
end-user
In product development, an end user (sometimes end-user) is a person who ultimately uses or is intended to ultimately use a product. The end user stands in contrast to users who support or maintain the product, such as sysops, system administrato ...
s. The term is used in regulation, yet is vague and thus subject to prolonged political wrangling. For example, the US law defines an LSE as an obligation-bound provider of electricity directly to consumers or to a utility that serves the consumers.
FERC
The Federal Energy Regulatory Commission (FERC) is the United States federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce and regulates the transportation of oil by pipeline in ...
defines the LSE as "any entity, including a load aggregator or power marketer, that serves end-users within a
control area Control area may refer to:
* Control area (aviation)
In aviation, a control area (CTA) is the volume of controlled airspace that exists in the vicinity of an airport. It has a specified lower level and a specified upper level. It usually is situat ...
and has been granted the authority or has an obligation pursuant to state or local law, regulation, or franchise to sell electric energy to end-users located within the control area".
An LSE can be considered to be a demand aggregator for the end-users or a
middleman
Middle man or Middleman or The Middle Men may refer to:
* an intermediary, such as:
** a wholesaler
** a reseller
Film, television and books
* ''Middle Man'' (film), a 2016 American black comedy
* ''Middle Man'' (1990 film), the fifth installme ...
capable of setting its own prices to extract profit.
Opgrand suggests to classify the LSEs into two distinct types, ''regulated utilities'' and ''unregulated LSEs'' that have very different incentives with regard to the
auction revenue rights (an instrument commonly used in many competitive electricity markets).
LSE buys the energy at the wholesale electricity market and resells it to its customers at a
regulated price
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...
, thus incurring market risks.
Wholesale electricity markets in their current state cannot rely on energy-only pricing to provide the expected grid reliability, thus regulators through the
regional transmission organization
A regional transmission organization (RTO) in the United States is an electric power transmission system operator (TSO) that coordinates, controls, and monitors a multi-state electric grid. The transfer of electricity between states is considered ...
also obligate the LSEs to
pay for the capacity so that there is enough electricity supply available to support the peak demand.
References
Sources
*
Electricity markets
{{electric-power-stub