How is electricity priced?
Why your bill is bigger than the cost of the fuel that made your power.
The price on your electricity bill is really three things stacked together: generation (making the power), transmission and distribution (moving it over high-voltage lines and then down your street), and a layer of taxes, fees, and utility costs. In most US bills, generation is roughly half, and the wires are a big and growing share because building and maintaining the grid is expensive. That cost shows up whether or not fuel is cheap.
On the generation side, wholesale power is usually sold through markets run by grid operators like PJM, ERCOT, or CAISO. Generators offer power at the price they're willing to run for, the operator stacks those offers from cheapest to most expensive, and the price is set by the last unit needed to meet demand, known as the marginal plant. That's why a hot afternoon, when an old gas peaker has to switch on, can be many times more expensive than a mild night running on wind and nuclear.
Frequently asked questions
Why is my electricity bill more than the cost of fuel?
Because fuel is only part of generation, and generation is only about half the bill. The rest is transmission and distribution (the wires), plus taxes, fees, and fixed utility costs that exist regardless of fuel prices.
What sets the wholesale price of electricity?
In most markets, the marginal plant: the last, most expensive generator needed to meet demand at that moment. Everyone running gets paid that clearing price, which is why scarcity sends prices sharply higher.