Providing the Power

October 1, 2002

From the Energy Information Administration

Electricity is an integral part of life in the United States. It’s indispensable to factories, commercial establishments, homes, and even most recreational facilities. Lack of electricity causes not only inconvenience, but also economic loss due to reduced industrial production.

According to officials at the Edison Electrical Institute, prospects for new electricity capacity are mixed. Due to the uncertain economy, demand is flat, and a number of planned projects have been postponed or shelved due to lack of funding. The North American Reliability Council (NERC), in its Electricity Supply and Demand Database, said that 750,771 total megawatts of generating capacity was produced in the summer of 2000 in the United Sates. (Summer is the peak capacity demand period). A megawatt is one thousand kilowatts (1,000 kW) or one million (1 million watts). One megawatt-hour represents one hour of electricity consumption at a constant rate of 1 MW. For 2002, the NERC projected summer capacity was 836,140 megawatts. For 2003, it’s projected at 865,853. The numbers will continue to rise through the rest of the decade, with 952,777 megawatts projected by 2010. The figures are calculated in part from previous capacity and usage trends.

Electric Power

Electric power is the rate at which electricity does work-measured at a point in time, that is, with no time dimension. The unit of measure for electric power is a watt. The maximum amount of electric power that a piece of electrical equipment can accommodate is the capacity or capability of that equipment.

Electric energy is the amount of work that can be done by electricity. The unit of measure for electric energy is a watthour. Electric energy is measured over a period of time and has a time dimension as well an energy dimension. The amount of electric energy produced or used during a specified period of time by a piece of electrical equipment is referred to as generation or consumption.

Electricity Generation

Electricity generation is measured in kilowatthours. Various sources of energy are used to generate electricity, including fossil fuels, uranium, water, solar, geothermal, and biomass.

Gross generation is the amount of power produced by an electric power plant (station), measured at the terminals of the plant (that is, prior to the point at which the power leaves the station and is available to the system). Some of the electric power generated at a power plant is used to operate equipment at the plant; plant use (or "in-house use") generally ranges between 1 percent (for hydroelectric units) and 7 percent (for steam-electric units). Net generation is the power available to the system (gross generation less use at the plant); however, it’s greater than that available to consumers due to losses during transmission and distribution (approximately 8 to 9 percent). Note that the measure used for electric utilities is net and for nonutility facilities is gross generation.

Electricity Generation from Fossil Fuels

Fossil fuels supply about 70 percent of the United States’ requirements for electricity generation. Currently, the dominant fossil fuels used by the industry are coal, petroleum and gas. Other fossil fuels include petroleum coke, refinery gas, coke oven gas, blast furnace gas and liquefied petroleum gas.


Historically, most generation of electricity in the United States has been from coal. Coal-fired generation became even more important following the Organization of Petroleum Exporting Countries (OPEC) oil embargo of 1973 due to concerns over the availability of petroleum imports, increasing petroleum costs, and curtailments of natural gas. In 1978, the passage of the Powerplant and Industrial Fuel Use Act and the Natural Gas Policy Act encouraged further use of coal by electric utilities. Although both federal and state environmental laws and regulations existed during the 1970s, renewed interest in environmental issues raised concerns about electric power plant emissions, particularly from those plants burning coal. The Clean Air Act Amendments of 1990 established a goal of a 10-million-ton reduction in sulfur dioxide emissions and a 2-million-ton reduction in nitrogen oxide emissions from 1980 levels by 2000.


During the early 1970s, electric utilities used petroleum extensively to generate electricity. However, after the 1973 embargo by OPEC on petroleum exports to the United States, petroleum prices rose sharply. Further price increases occurred in 1979 and 1980 following the Iranian revolution and subsequent reductions in Iranian petroleum exports. Consequently during the past decade, utilities haven’t built large, petroleum-fired steam units. In addition, many utilities have either converted steam units to coal or switched fuels where dual-fired capability exists. Most of the utilities that still rely heavily on petroleum to generate electricity are located along the eastern seaboard.


The demand for gas (primarily natural gas) to heat homes and serve business and industry has historically taken priority over demand from electric utilities under both federal and state regulations. In the 1970s, many utilities were on occasion denied gas when available pipelines reached capacity in serving heating demand during the months from November to March (the peak heating season). By the middle 1970s, curtailments to electric utilities also occasionally occurred during the nonheating season as producers conserved supply in preparation for heating season demand.

In the face of an attractive interstate price structure, but deprived of supplies during many months of the year, utilities in the 1970s used relatively less expensive gas when it was available, then switched to other more expensive fuels when gas supplies were curtailed. Gas became more available to utilities with the passage of the Natural Gas Policy Act of 1978 and more frequent exemptions from the gas-use restrictions of the Powerplant and Industrial Fuel Use Act (Fuel Use Act) of 1978. Amendments to the Fuel Use Act in 1987 created potential for additional use of gas. These amendments eased restrictions on the use of gas by removing a legal requirement to obtain an exemption for the construction of new gas-fired generating capability.

Nuclear-Powered Generation

Generation from nuclear power has generally increased since the 1950s, and this trend continues. Since 1984, nuclear plants have provided the second largest share of total U.S. electric utility generation of electricity, after coal-fired plants. Nuclear generation accounted for 14 percent of total utility net generation.

Generation from Renewable Fuels


Water is currently the leading renewable energy source used by electric utilities to generate electric power. Hydroelectric plants operate where suitable waterways are available; many of the best of these sites have already been developed. Generating electricity using water has several advantages. The major advantage is that water, a renewable resource, is a source of cheap power. In addition, because there is no fuel combustion, there is little air pollution in comparison with fossil fuel plants and limited thermal pollution compared with nuclear plants.

Like other energy sources, the use of water for generation has limitations, including environmental impacts caused by damming rivers and streams, which affects the habitats of the local plant, fish, and animal life. Seventy percent of the hydroelectric power in the United States is generated in the Pacific and Rocky Mountain States.

Other Sources

Other renewable resources-geothermal (heat energy beneath the surface of the earth), wood, waste, wind, and the sun (solar)-are energy sources that are constantly replenished.

Currently, renewable resources (other than water) supply less than 1 percent of the electricity generated by electric utilities. Most of the electricity produced from this category is from geothermal power. Electric utilities currently operate geothermal plants in two states (California and Utah). The Geysers, operated by the Pacific Gas and Electric Company, is the largest geothermal plant in the United States. Only a few utilities operate units that produce electricity from wind and solar energy. Wood and waste resources can be used to replace fossil fuels in utility boilers.

Environmental Aspects

When fossil fuels are burned to generate electricity, a variety of gases and particulates are formed. If these gases and particulates aren’t captured by some pollution control equipment, they’re released into the atmosphere. This overview provides a brief summary of the gaseous emissions from U.S. electric utilities and the methods employed to reduce or eliminate their release into the atmosphere. Among the gases emitted during the burning of fossil fuels are sulfur dioxide (SO2), nitrogen oxides (NOx), and carbon dioxide (CO2).

Electric Utilities

The more than 3,170 traditional electric utilities in the United States are responsible for ensuring an adequate and reliable source of electricity to all consumers in their service territories at a reasonable cost. Electric utilities include investor-owned, publicly owned, cooperatives, and federal utilities. Power marketers are also considered electric utilities-these entities buy and sell electricity, but usually do not own or operate generation, transmission, or distribution facilities. Utilities are regulated by local, state, and federal authorities.

Generally, interstate activities (those that cross state lines) are subject to federal regulation, while intrastate activities are subject to state regulation. Wholesale rates (sales and purchases between electric utilities), licensing of hydroelectric facilities, questions of nuclear safety and high-level nuclear waste disposal, and environmental regulation are federal concerns. Approval for most plant and transmission line construction and retail rate levels are state regulatory functions.

State public service commissions have jurisdiction primarily over the large, vertically integrated, investor-owned electric utilities that own more than 75 percent of the nation’s generating and transmission capacity and serve about 75 percent of ultimate consumers. There are 239 investor-owned electric utilities, 2,009 publicly owned electric utilities, 912 consumer-owned rural electric cooperatives, and 10 federal electric utilities. Approximately 20 states regulate cooperatives, and seven states regulate municipal electric utilities; many state legislatures, however, defer this control to local municipal officials or cooperative members.

Nonutility Power Producers

The approximately 2,110 nonutility power producers in the United States include:

  • facilities that qualify under the Public Utility Regulatory Policies Act of 1978 (PURPA).

  • cogeneration facilities that produce steam and electricity, but that are engaged in business activities other than the sale of electricity.

  • independent power producers that produce and sell electricity on the wholesale market at nonregulated rates, but don’t have franchised service territories.

  • exempt wholesale generators under the Energy Policy Act of 1992 (EPACT).

Traditional Electric Utilities

The U.S. electric power industry is composed of traditional electric utilities, including power marketers, and nonutility power producers. Utility service territories are geographically distinct from one another. Each territory is usually composed of many different types of consumers. Electricity consumers are divided into classes of service or sectors (residential, commercial, industrial, and other) based on the type of service they receive. Sectorial classification of consumers is determined by each utility and is based on various criteria such as:

  • demand levels.

  • rate schedules.

  • North American Industry Classification System (NAIC) Codes.

  • distribution voltage.

  • accounting methods.

  • end-use applications.

  • other social and economic characteristics.

Electric utilities use consumer classifications for planning (for example, load growth and peak demand) and for determining their sales and revenue requirements (costs of service) in order to derive their rates. Utilities typically employ a number of rate schedules for a single sector. The alternative rate schedules reflect consumers’ varying consumption levels and patterns and the associated impact on the utility’s costs of providing electrical service. Reclassification of consumers, usually between the commercial and industrial sectors, may occur from year to year due to changes in demand level, economic factors, or other factors.

Residential Sector

The residential sector includes private households and apartment buildings where energy is consumed primarily for:

  • space heating.

  • water heating.

  • air conditioning.

  • lighting.

  • refrigeration.

  • cooking.

  • clothes drying.

Commercial Sector

The commercial sector includes nonmanufacturing business establishments such as:

  • hotels.

  • motels.

  • restaurants.

  • wholesale businesses.

  • retail stores.

  • health, social, and educational institutions.

Sometimes the commercial sector also includes small manufacturing facilities.

Industrial Sector

The industrial sector includes:

  • manufacturing.

  • construction.

  • mining.

  • agriculture.

  • fishing.

  • forestry establishments.

An electric utility may classify commercial and industrial consumers based on either NAIC codes or demand and/or usage falling within specified limits, set by the electric utility based on different rate schedules.

The other sector includes public street and highway lighting; railroads and railways; municipalities, divisions or agencies of state and federal governments under special contracts or agreements; and other utility departments, as defined by the pertinent regulatory agency and/or electric utility.

The Changing Electric Power Industry

The electric power industry is evolving from a highly regulated, monopolistic industry with traditionally structured electric utilities to a less regulated, competitive industry. PURPA opened up competition in the generation market with the creation of qualifying facilities. EPACT removed some constraints on ownership of electric generation facilities and encouraged increased competition in the wholesale electric power business.

Continuing deregulation at both federal and state levels is transforming the historically monopolistic electric power industry into a competitive industry that will eventually increase competition in its generation and service components, and change the nature of the way electricity is priced, traded, and marketed in the United States.

The Energy Information Administration (EIA), created by Congress in 1977, is a statistical agency of the U.S. Department of Energy. The EIA can be reached by calling (202) 586-8800 or by visiting