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Electricity Prices Reflect Delivery, Power Production Costs

Over the past decade, retail electricity prices have not closely followed the costs of fuels used to generate electricity, such as coal or natural gas, mainly because of changes in the other costs involved with producing and delivering electricity in the U.S.

The cost of electricity reflects money spent on generation, transmission, distribution, and other plant-in-service additions, as well as plant operation and maintenance. Over the past decade, the portion of total electricity costs attributed to power production for most utilities has decreased from 69% to 54%, while the portion associated with delivering that electricity to customers has risen.

Power production costs incurred by utilities include fuel costs; nonfuel costs, including the costs of building, upgrading, operating, and maintaining generators; and the costs of purchasing power from independently-owned generators or from power markets. While the fuel and purchased power costs have decreased over the decade with the decrease in natural gas prices, nonfuel costs have increased slightly. 

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