Electricity Prices Explained

Electricity prices, or rates, are usually determined by electric utilities and the govermental organizations that oversee them. The fees an electric utility company charges its customers for service aer based on electricity prices set by government, except in the case where electricity prices are deregulated. In that case, electricty prices are determined by marketplace factors such as supply and demand. Electric utility companies charge their customers different rates, depending on the type of customer, the kind of contract, and on the customer's needs. Electricity Prices computed on the basis of the individual customer's rate, the level of consumption, and other charges, such as taxes and fuel adjustments.

That collection of rates is called a tariff. The power tariff is designed to provide the privately owned electric utility with enough income to allow investors to earn a cash return and cover operation and maintenance costs. Most of the larger utilities operate as regulated franchises, meaning that the prices they charge are subject to public review, often by a State public utility commission.

Publicly owned electric utilities are nonprofit, local government agencies established to provide service to their communities and nearby consumers at cost, returning excess funds to the consumer in the form of community contributions, more economic and efficient facilities, and lower power rates.

Publicly owned electric utilities (which number approximately 2,000) include municipals, public power districts, State authorities, irrigation districts, and other State organizations.

There are approximately 900 cooperative electric utilities in the United States currently doing business in 47 States. These utilities are owned by their members and are established to provide power to those members.

Average retail Electricity prices of power are calculated by dividing utility revenue by retail sales. The resulting measurement is the cost, or average revenue per kilowatthour, of power sold. (A kilowatthour is equal to one watt of power supplied to an electric circuit steadily for 1,000 hours.) Electric utilities usually offer three primary classes of service: residential, commercial, and industrial. The average price per kilowatthour for residential consumers is generally higher than for any other sector due in part to higher costs associated with serving many consumers who use relatively small amounts of power. The industrial sector has the lowest electricity prices due to the economies of serving a few consumers who use relatively large amounts of electricity.