Electricity 101: Terms and Definitions

There are three main steps in the process of getting electricity to a home or business: generation, transmission, and distribution.

Generation refers to the process of converting energy into electricity. Power plants generate electricity from a variety of energy sources, including fossil fuels (coal, oil, and natural gas); nuclear reactions (fission); and renewable sources (such as solar, wind, and hydroelectric power).

Transmission refers to transporting electricity (typically over long distances) from the power plants where it is generated to the neighborhoods and cities where it will be used. For each mile electricity travels, some power is lost. Electricity is transmitted at high voltages to minimize this loss and make transmission more efficient.

Distribution is the process of transferring electricity over the relatively short distance from transmission cables into a home or business. Between the transmission and distribution power lines, transformers in distribution substations “step down,” or decrease, the voltage to the levels required in households and businesses.

Natural monopolies occur when, for practical reasons, a service or good is only provided by one entity in a region. They exist due to high fixed costs (expenses that do not change depending on the amount of goods or services produced), which make it inefficient for more than one entity to provide a given product or service. Transmission and distribution services are natural monopolies; building more than one set of power lines in a given area is not practical.

The electric grid (or just the grid) is made up of the network of transmission and distribution infrastructure—power lines, transformers, and other equipment—that powers a region.

Electricity is generated using a variety of different sources. Once it flows onto the grid, however, electricity from different sources cannot be differentiated. The electricity on the grid is similar to the water in a pool; if several people pour water into a pool, the water mixes together and the water from different sources cannot be distinguished.

The United States is divided into multiple interconnections, which are grids that cover large regions of North America. The interconnections are not connected to each other; electricity flows throughout each interconnection as described above, but it does not flow from one interconnection to another. The different interconnections are shown on the map below.