Why Electricity Prices Differ So Much by State
The price of electricity is not one national number. In 2025 the annual average retail price of electricity for all types of electric utility customers ran from 35.72 cents per kilowatt-hour in Hawaii down to 8.20 cents per kilowatt-hour in North Dakota. More than four times as much at one end as at the other. Both are preliminary figures from the U.S. Energy Information Administration.
Electricity prices generally reflect the cost to build, finance, maintain, and operate power plants and the electricity grid, and the cost of generating electricity is the largest component of that price. From there it varies by locality, by type of customer, and by season.
The Gap Between the Highest and Lowest States
Two things about those state figures before anything else. They cover all types of electric utility customers, not households alone, so neither number is a residential price. And they sit on either side of a U.S. annual average retail price of about 13.63 cents per kilowatt-hour in 2025, also preliminary.
Hawaii sits at the top of that range for a reason. Prices in Hawaii are high relative to other states mainly because most of its electricity is generated with petroleum fuels that must be imported into the state.
That reason belongs to Hawaii.
Electricity prices vary by locality based on the availability of power plants and fuels, local fuel costs, and pricing regulations.
What Influences the Price of Electricity
Several key factors influence the price of electricity. They are pressures on the price, and some of them push in opposite directions.
Fuels. Fuel prices, especially for natural gas and petroleum fuels, mainly in Hawaii and villages in Alaska, may increase during periods of high electricity demand and when fuel supply constraints or disruptions occur. Higher fuel prices may in turn result in higher costs to generate electricity.
Power plant costs. Each power plant has financing, construction, maintenance, and operating costs.
The transmission and distribution system. The systems that connect power plants with consumers have construction, operation, and maintenance costs. Those costs include repairing damage to the systems from accidents or extreme weather events, and improving cybersecurity.
Weather conditions. Extreme temperatures can increase demand for heating and cooling, and the resulting increases in electricity demand can increase fuel and electricity prices. Rain and snow provide water for low-cost hydropower generation, and favorable wind speeds can provide low-cost wind generation.
Weather also works through a second, longer route. When droughts occur, or competing demand for water, or dropping wind speeds, generation from those sources is lost, and it is that loss of generation that can put upward pressure on other energy or fuel sources and prices.
Regulations. In some states, public service commissions fully regulate prices. Other states have a combination of unregulated prices for generators and regulated prices for transmission and distribution.
One more thing sits inside the price. Some for-profit utilities include a financial return for owners and shareholders in their electricity prices. Even so, the cost of generating electricity is the largest component of the price of electricity.
Why Season and Time of Day Move the Cost
Changes in prices generally reflect variations in electricity demand, the availability of energy sources and fuels, fuel costs, and power plant availability. Demand for electricity contributes to the cost of supplying electricity.
The cost to supply electricity changes minute by minute. The wholesale price of electricity on the electric power grid reflects the real-time cost for supplying electricity.
Demand for electricity is usually highest in the afternoon and early evening, the peak hours, so costs to provide electricity are usually higher at those times.
Prices are usually highest in the summer, when total demand is high, because more expensive generation sources are added to meet the increased demand.
Most consumers pay prices based on the seasonal average cost of providing electricity, so they do not experience these daily price fluctuations. The minute-by-minute movement is real. It gets flattened before it reaches most meters.
Some utilities offer their customers time-of-day pricing to encourage electricity conservation and to reduce peak demand for electricity.
How Retail Prices Differ by Type of Customer
Retail prices also differ by the kind of customer buying the electricity, and the pattern is consistent enough to put in a small table.
Retail electricity prices by type of customer (U.S. Energy Information Administration)
| Type of customer | Where its retail price sits | Why it sits there |
|---|---|---|
| Residential | Usually highest | It costs more to distribute electricity to them |
| Commercial | Usually highest | It costs more to distribute electricity to them |
| Industrial | Generally close to the wholesale price of electricity | These customers use more electricity and can receive it at higher voltages, so supplying electricity to them is more efficient and less expensive |
What separates these rows is what it costs to get electricity to each kind of customer: more to distribute it to homes and businesses, less to supply industrial customers at higher voltages.
Who Sells the Power and Who Delivers It
The source of the electricity you buy varies, and the way electricity is sold to you varies from region to region. Some electric utilities generate all the electricity they sell using their own power plants. Others buy electricity from different utilities, power marketers, independent power producers, or from wholesale markets.
The company selling you power may be a not-for-profit municipal electric utility, owned by the city or local government. It may be an electric cooperative owned by its members. It may be a private, for-profit electric utility owned by stockholders, often called an investor-owned utility.
In some states, electric utility customers can buy electricity directly from a power marketer, and a local utility delivers it. A few federally owned power authorities, including the Bonneville Power Administration and the Tennessee Valley Authority, also generate, buy, sell, and distribute power.
The ownership question and the delivery question have different answers. No matter the electricity’s source, local electric utilities operate the distribution system that connects homes and businesses to the grid.
The Grid Between the Power Plant and the Meter
Electricity is generated at power plants and then travels through a complex system, often called the grid. The grid includes electricity substations, transformers, and power lines that connect electricity producers and consumers. Most local grids are interconnected to each other, forming larger, reliable networks that ensure there is always enough electricity to meet demand.
The scale is what surprised me. In the United States, the electricity grid is made up of thousands of miles of high-voltage power lines and millions of miles of low-voltage power lines, connecting thousands of power plants to hundreds of millions of electricity customers across the country.
High-voltage transmission lines, such as those hanging between tall metal towers, carry electricity over long distances. Higher-voltage electricity makes long-distance electricity transmission more efficient and less expensive. Distribution lines then carry the lower-voltage electricity, which is safer to use in homes and businesses, and deliver it to customers. Transformers at substations either step voltages up or step them down to suit each stage of that journey.
So a kilowatt-hour is a physical thing that had to be made somewhere and moved somewhere, through equipment that had to be financed, built, and kept working, under rules that differ by state and in weather that changes from season to season. A rate sheet generally reflects all of it.