Electric Power Terminology

When learning about the U.S. electric power industry, several technical details are important to understand:

Power and Energy

"Power" is the rate at which electricity is generated or used. Power is measured in watts, kilowatts (1000 watts) or megawatts (a million watts). One 100-watt light bulb has a power consumption of 100 watts. Ten 100-watt light bulbs have the power consumption of 1000 watts, or 1 kilowatt of electricity. One thousand small houses, using only ten 100-watt light bulbs each, consume one million watts of electricity, or 1 megawatt of power.

The capacity of a power plant is the maximum amount of power that it can generate. A large coal, nuclear, or hydroelectric facility can generate about 1000 megawatts of power, which is also called a gigawatt. Likewise, the capacity of a transmission or distribution line is the maximum amount of power that the line can carry, also called the power rating of the line. Finally, the amount of power consumed by the end users is referred to as the load or "demand," and the user's maximum power use is its "peak demand." For instance, a large grocery store will have a peak demand of about 1 megawatt of power.

In contrast to power, which is the rate at which electricity is being generated or consumed, "energy" is the amount of electricity used over time (power multiplied by time), and is measured in watt-hours (Wh), kilowatt-hours (kWh), and megawatt-hours (MWh). For instance, one 100-watt light bulb turned on for 1 hour uses 100 watt-hours of electricity. Ten 100-watt light bulbs turned on for 1 hour use 1 kilowatt-hour of energy. One thousand small houses with their lights on, or one grocery store open for one hour uses one megawatt-hour of energy.


Electric meters are measurement devices that determine the amount, and sometimes rate, of electricity actually used. This monthly consumption information is used to billed the customer. "Net metering" is available in certain states, allowing the flow of electricity in both directions: From the power grid to the costumer and back into the power grid from a customer-owned generator. The customer is charged (or credited) depending on the net usage. The utility may charge or credit the customer differently depending upon the time of the usage or production, since electricity produced at times of peak usage is more valuable.

Demand (kW) and energy (kWh) are often billed separately on utility bills, particularly for larger commercial and industrial facilities. The demand charges are related to the peak power consumption of the facility (often measured over a moving 10-minute average) and reflect the costs of the corresponding generation and transmission facilities that have been built to supply that peak load. Energy charges cover the operating costs of a power system, the largest operating cost usually being fuel.

The terms "capacity factor" and "load factor" are measures of utilization. The capacity factor for a generator is the ratio of energy the plant actually generated over a period of time to the amount of energy it could have generated if it had been running at its nameplate power rating over the same period of time. The load factor is similarly the ratio of average load to peak load over time.

Wholesale and Retail Power

Wholesale power is bulk power sold to utilities for resale. It is usually sold with different prices for on-peak and off-peak usages. It is generally measured in megawatts (MW) and megawatt-hours (MWh). Prices are in mills per kilowatt-hour or in dollars per megawatt-hour. To have power delivered from a trading hub (the location where it is sold), a utility has to add transmission charges, ancillary service charges and other utility charges.

Retail power is electricity sold to the end user. It is measured in kilowatt-hours and priced in cents per kilowatt-hour. The retail price of electricity includes the wholesale power costs, transmission costs, distribution delivery costs, taxes, and other approved additions to rates.