Electricity is an essential part of modern life. In our homes we use it for lighting, running appliances and electronics, and for heating and cooling. Most consumers do not think much about their electricity until a power outage, or when they are “shocked” by a high utility bill. Fortunately in the United States, power outages are relatively infrequent and short in duration mainly because we have one of the most advanced, reliable, and well-maintained electricity generation, transmission and distribution systems in the world. Electricity bills, however, are frequent and unavoidable. The dollar amount charged each month is a function of the price per kilowatthour (kWh) and the amount of kilowatthours consumed; other add-ons to your bill include State and local taxes and costs for maintaining reliability. Further understanding of your monthly electric bill, and the history of retail electricity prices, begins with a discussion of the basics of how electricity is produced and delivered to the average residential customer.

Electricity is delivered to you by the local utility through a network of existing transmission and distribution lines, often referred to as the “grid.” Transmission lines are the large, high-voltage power lines that move electricity from power plants to substations and are often supported by tall metal towers. Smaller, lower voltage distribution lines move power from substations and transformers, and are often seen along residential streets supported by wood poles. Most of the existing grid was built during a highly structured, highly regulated era designed to insure that everyone in the United States had reasonable access to electricity service. The utility customers, through fees authorized and regulated by State regulatory commissions, generally paid for developing and maintaining the grid. The utilities built power plants and connected the plants to the grid. Electricity generated at these plants is loaded onto the grid, where it is transmitted and distributed to you. Your usage is measured with a meter (Figure 1).

The utility, distribution company or retail service provider selling you power may be a not-for-profit municipal entity, an electric co-operative owned by its members, a private, for-profit company owned by stockholders (often called an investor-owned utility), or a power marketer. Some federally-owned authorities--including the Bonneville Power Administration and the Tennessee Valley Authority, among others--also buy, sell and distribute power. The origin of the electricity you consume may vary. Utilities may generate all the electricity they sell utilizing just the power plants they own. Utilities may also purchase some of their supply on the wholesale market from other utilities, power marketers, independent power producers, or from a “power pool” created by neighboring utilities often based on membership in a regional transmission reliability organization. Also some residential, industrial, commercial, and institutional users of electricity have the means to produce electricity for themselves and sell any excess back to their utility. In addition, there is some power consumed in the United States that is imported from Canada and Mexico.

Many local grids are interconnected for reliability and commercial purposes forming larger, more dependable networks to maximize coordination and planning. These networks extend throughout many States. The North American Electric Reliability Council (NERC) was established in 1968 to ensure that the grid in the United States was reliable, adequate and secure. Some of its members have formed regional organizations with similar missions. These organizations are referred to as Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs). They are part of a national standard design advocated by the Federal Energy Regulatory Commission (FERC). Some have members who connect to lines in Canada or Mexico. Most, depending on the location and the utility, are indirectly connected to dozens and often hundreds of power plants.

What Are the Types of Power Plants that Generate Electricity? Power plants can be grouped into the types of fuel or energy source they use to produce electricity. These include fossil fuels (coal, natural gas, or a refined oil product), nuclear energy, and renewable energy sources such as water (hydroelectric power), biomass, waste-to-energy, geothermal, wind, and solar energy, as well as alternative fuels. Figure 2 shows the relative share of electricity generation by fuel/energy type. One of the features of electricity is that your television and stereo, heating system, air conditioning system, appliances and light fixtures cannot tell the difference between the types of generation, location, or fuel sources. This makes all the electricity on the system usable by all those connected to the grid.