Electric Utilities: How Electricity is Priced

College students taking economics courses usually realize that electricity is produced by a power plant and shipped over power lines. Yet they do not know how electricity is generated, how it is transmitted to business and household customers, and how it is priced. The purpose of this paper is to provide a primer on the electricity industry and, in particular, on how electricity is priced. The concepts discussed in this primer provide applications of concepts that students learn in principles of microeconomics, intermediate microeconomics, industrial organization, government and business, and managerial economics. The paper aims to make recent developments in electricity pricing accessible to a wide audience of readers and to provide them a timely and interesting application of applied microeconomics