Summary We propose an inventory‐based optimization model for a system of electricity supply chain. The system involves two parties, including a power plant and a transmission station. In the investigated system, power plant performs the production activities from raw material. Thus, the power plant is responsible for the raw material purchasing, electricity production to fulfill both in‐house and consumer demand, and for electricity distribution to the transmission station. In‐house demand for electricity, which further be called by the utility system demand, is used to perform the production process. Electricity distribution to end consumers is carried out by the transmission station. Here, we consider a stochastic demand, blackout cost, and purchasing decision to order raw material. The model aims to minimize the expected joint total cost for the supply chain system. Several decisions are determined including electricity consumption of utility system and transmission station, power plant distribution factor, emergency backup factor, and raw material ordering factor to supplier. We propose an iterative procedure to solve the model and provide a numerical analysis to get better insight on the related problem.

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