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How is my electricity generated, delivered, and priced?

Many technologies and fuels are used to generate electricity, which is then delivered to consumers through a complex network of transmission lines and equipment known as the "grid". The price that consumers pay for electricity is determined by capital costs, operating costs, weather factors, consumer demand, and regulations.

Many Technologies and Fuels are Used to Produce Electricity

About 90% of U.S. electricity is generated by three fuels: coal, nuclear, and natural gas.

Nearly all electricity is generated by rotating turbines that drive generators. Turbines are typically driven by water, wind, and hot gases. The most common method,  steam, is produced in several ways: 

  • From water that is boiled by burning either fossil fuels (coal, natural gas, or petroleum), fissile fuels or biomass materials (wood, wood waste, municipal solid waste, agricultural waste, and other waste materials)
  • From geothermal resources where hot water or steam under pressure in geothermal reservoirs in the earth's crust emerges from the ground and drives a turbine
  • From a fluid heated by the sun (solar power)

Electricity Is Delivered to Consumers Through a Complex Network of Transmission and Distribution Lines

Power is generated at power plants and then moved to substations by transmission lines-large, high-voltage power lines, often supported by tall metal towers. In the United States, the network of nearly 160,000 miles of high voltage transmission lines is known as the "grid."

A local distribution system of smaller, lower-voltage distribution lines then moves power from substations and transformers to customers.

Many Factors Affect the Price You Pay for Electricity

Factors that affect the price of electricity include: cost and availability of the resources used for power generation (e.g., water is relatively inexpensive while natural gas tends to be more costly)

  • Construction and maintenance costs of power plants
  • Cost of the transmission system to deliver electricity
  • Supply and demand for fuels
  • Regulations impacting generation and transmission of electricity. For example,  in some states prices are fully regulated by Public Service Commissions, while in others there is a combination of unregulated prices (for generators) and regulated prices (for transmission and low voltage distribution)

Season and weather conditions frequently affect supply of fuel or electricity. Today, this is becoming more important for renewables electrical generation, such as wind and solar. Wind and solar generation are intermittent by nature and require additional features to ensure a reliable supply of electricity.

In most parts of the United States, supply and demand cause monthly and even daily price fluctuations. Demand is usually highest:

  • In the afternoon and early evening (these are "on-peak" hours)
  • During the summer months when air-conditioning use is greatest

Climate can also affect supply, particularly for renewables such as hydropower, wind, and solar. For this reason these types of resource are intermittent and not as reliable as base load resources such as nuclear, coal or natural gas generating sources.

U.S. Net Electricity Generation by Fuel, 2015


Source: U.S. Energy Information Administration, Electric Power Monthly,

Table 1.1 (January 2016)