coordination and planning. These networks extend throughout 

many States. The North American Electric Reliability Corporation 

(NERC) was established 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. 

The utility, distribution company or retail service provider selling 

you power may be a not-for-profi t municipal entity, an electric 

co-operative owned by its members, a private, for-profi t 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 market 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.

Figure 1. Power Generation, Transmission, and Distribution

 

Source: Energy Information Administration

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 refi ned oil product), nuclear energy, and renewable 

 Residential 

 Electricity Prices: 

 A Consumer’s

 Guide

Introduction

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.

Where Does Your Electricity Come From?

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). 

Many local grids are interconnected for reliability and commercial 

purposes forming larger, more dependable networks to maximize 

����������

��������������������

�����������

��������������

���������������

�����������������

����������������

�������������

������������

�����������

����������������

�����������������

����������������

��������

�����������������������

�����������������������

������������
energy sources such as water (hydroelectric power), biomass, wasteto-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 fi xtures 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. 

Figure 2. U.S. Electric Power Industry Net Generation by

 Fuel Source, 2006 

 

Source: Energy Information Administration, Electric Power Annual 2006, November 2007, Table ES1. 

What Determines the Price of Your Electricity?

A major component of the price of your electricity is the cost and 

availability of fuel used for power generation and the transmission 

necessary to deliver the power to you, as well as construction costs 

of plants and the associated expense for operation and maintenance. 

Supply and demand for fuel and transmission, international events 

and changes in weather also affect the price of your electricity. 

In most areas, the cost to generate electricity fl uctuates daily and 

monthly. These fl uctuations are a response to changes in demand 

for electricity. Daily demand for electricity is usually highest in 

the afternoon and early evening (on-peak). Seasonal peaks refl ect 

regional weather and climatic conditions, with the highest occurring 

in the summer when air-conditioning use is greatest. Power plants 

tend to operate in two basic modes: base-load and peaking load. 

Base-load power plants are most effi cient generating electricity at 

an even, consistent level, around the clock, and generally include 

nuclear, coal-fi red, geothermal and waste-to-energy plants. Some 

plants may sit as a “spinning reserve” during off-peak or on-peak 

periods. Peaking plants are turned on or “dispatched” as demand 

increases above the normal base load or demand. Peaking plants 

are expensive to operate, often fueled by refi ned oil products, or 

natural gas, and have a fuel cost per kWh higher than a baseload 

plant. Hydropower plants can operate in base and/or peaking mode. 

A relatively small amount of electricity is generated from “pumped 

storage” plants. These economically effi cient plants pump water from 

a river or reservoir up into reservoirs located above hydroelectric 

turbines. Additionally, some high-deliverability salt-dome natural 

gas storage facilities support power plants using natural gas providing 

an extremely fl exible supply of power. Wind and solar power plants 

are referred to as intermittent resources. They may supply power 

during peak and off-peak periods depending on the availability of 

their energy source.

Most investor-owned utilities are monitored and regulated by State 

Public Utility Commissions (PUC) and the FERC. The breadth and 

scope of regulation varies by State. Many States have “restructured,” 

but only some have embraced fully the deregulation of retail prices 

and the introduction of competition, which allows residential retail 

choice. Interest in restructuring has been declining. Retail choice 

availability varies by State. (Check with your State PUC or local 

utility for more information regarding retail choice availability.) 

Figure 3. Average Retail Price of Electricity Sold by U.S. 

 Electric Power Industry, 1960-2006 

 

Source: Energy Information Administration, Annual Energy Review 2007, Table 8.10.

Average Electricity Prices in the United States

The 2006 price of residential electricity in the United States is 10.4 

cents per kWh. There have been fl uctuations in prices due to the 

oil shocks of the 1970s and the move towards greater conservation 

in the 1980s (Figure 3). Residential utility customer rates generally 

refl ect the utility’s cost to produce or purchase power, plus associated 

transmission fees, ancillary services to increase reliability, and other 

costs incurred by the utility, plus a State-approved and regulated 

rate-of-return on the assets it owns. Most residential customers’ 

rates fl uctuate on a seasonal basis, as overall demand increases and 

decreases, mainly in response to weather and climate conditions. 

Price differences by State are often related to the cost and availability 

of the fuels used to generate, as well as the existence of retail 

competition (Figure 4).

����� � ����� ������� ���

�������� ������� ������ � �����

����������� ����� ��������� � ��������

���� ��� ����� ������ � �����

����

�����

����������

����

�������

�����

���������

����

����������

�����

�����

����������

����

�����

����

�������������

����

�������������������������������

�

�

�

�

�

��

��

��

���� ���� ���� ���� ���� ���� ���� ���� ���� ����

����������� ������ ���������� ������ ���������� ������ �������������� ��������� ����� ��� ������� ��������� ����� ��� ������������
Your Electricity Consumption Primarily 

Determines Your Total Bill

Your total bill for the month, before taxes and other add-ons, is the 

price per kilowatthour multiplied by the number of kilowatthours you 

have consumed over the month. The typical residence has numerous 

electricity consuming appliances and devices. Figure 5 shows 

residential electricity consumption by types of uses for electricity.

Figure 5. U.S. Residential Electricity Consumption, 2006

What Can Residential Customers Do to Reduce 

Electricity Bills?

There are several steps that you can take to reduce your electric bill. 

Conservation and increased effi ciency are popular methods. You can 

reduce your usage by turning off lights and appliances when they 

are not being used and add additional weather insulation to doors 

and windows if necessary. These are among the easiest and leastcost methods of reducing your electric bill. You may also want to 

buy more energy effi cient lights and appliances. Some utilities offer 

demand management programs to encourage major electricity uses 

off-peak, including “time-of-use” rates, which are higher during peak 

demand periods and lower during off-peak times. Some utilities may 

allow you to average your annual bill over 12 months to lessen the 

shock of seasonally high bills. Check with your local utility to fi nd 

out about the programs they have to help you reduce your monthly 

bill. In addition, consumers in some States have the option to choose 

the company selling them their electricity, which could result in 

lower prices. If you have that option, check the websites of your 

State PUC and your utility for the names of retail service providers 

or power marketers active in your area. �

���

�

���

�

���

����������� ���

�������

��� ������������

����� �������

�������������

��������

������

������ �������� ����� �������� �������� ������� ��������� ��� ������

��� ������� �� ���� �������� ����� ������������ ������� ������� �������

������� ��������� ������� �������� ������������ �������� ���������

��� ������� �����

������� ������ ����������� ��������������� ������ ������ �������

����� ����� ���

����

����

���� ����

����

����

��

�����

��

�����

��

�����

�� �����

�� �����

�� �����

�� �����

�� �����

�� ����

��

�����

�� ����

��

����

��

����

��

����

��

����

��

����

��

����

��

����

��

����

��

����

��

����

��

�����

��

����

��

����

��

����

��

����� ��

����

��

����

��

����

��

����

��

����

��

����

��

�����

��

�� �����

����

��

����

��

���� ��

����

��

����

��

�� ����

��

�����

��

�� ����

����

�� ����

��

����

��

����

��

����

��

�����

����������� ������� �����

������ ��� ����

���� �� ����

���� �� ����

���� �� �����

���� �� ����

����� �� �����

����

��

�����

��

�����

������� ������ ����������� ��������������� ���� �������� ������ �������� ����� �������� �������

Figure 4. U.S. Electric Industry Residential Average Retail Price of Electricity by State, 2006 (Cents per kWh)
For More Information ....

EIA’s Electric Power Industry Overview

This overview provides an introduction to the electric power industry 

for the layperson, presenting background information on the industry’s 

overall nature and composition:

http://www.eia.doe.gov/cneaf/electricity/page/prim2/toc2.html 

NEIC’s Energy Kids Page

Basic information about electricity and other sources of energy is 

available from this web site:

http://www.eia.doe.gov/kids/energyfacts/index.html

NARUC – State Commissions’ Links Page

The National Association of Regulatory Utility Commissioners (NARUC) 

is a non-profi t organization whose members include the government 

agencies that regulate the activities of telecommunications, energy, and 

water utilities:

http://www.naruc.org/commissions.cfm

DOE Offi ce of Energy Effi ciency and Renewable Energy Consumer 

Info Page

This site is your guide to saving energy and energy effi ciency options:

http://www.eere.energy.gov/consumer/

Status of Electricity Restructuring by State

This site shows the status of electricity restructuring and contains a 

State-by-State summary of pertinent electricity restructuring activities 

that occurred since restructuring legislation was introduced for each 

respective State.

http://www.eia.doe.gov/cneaf/electricity/page/restructuring/restructure_

elect.html

State Electricity Profi les

This report describes the electricity industry in each State, with printerfriendly statistics for 1990 through 2006. Data includes generating 

capability, electricity generation, fuel use and prices, retail sales and 

prices by end use sector and ownership type, and emissions.

http://www.eia.doe.gov/cneaf/electricity/st_profi les/e_profi les_sum.html

Low Income Home Energy Assistance Program (LIHEAP)

LIHEAP is a federally funded program to help eligible low-income 

households meet their home heating and/or cooling needs:

http://www.acf.dhhs.gov/programs/liheap/

The Energy Information Administration is an independent statistical 

agency within the U.S. Department of Energy whose sole purpose is 

to provide reliable and unbiased energy information.

For further information, contact:

National Energy Information Center

Washington, DC 20585

(202) 586-8800 E-Mail: infoctr@eia.doe.gov

EIA web site: www. eia.doe.gov