When we send a package the price consists of 3 things - size, distance, and speed. I think that's a much better way of thinking about bandwidth than electricity is.
Peering agreements can be seen as one UPS taking my package to memphis and then fedex taking it to an area that only they serve. If fedex and UPS have similiar amount of packages going between them then they may decide to not bother charging each other. However, if fedex decides to reduce their territory to only major factories (CDNs) then all of a sudden the amount of packages they're sending over UPS gets out of equilibrium and UPS may decide to charge them for their delivery service.
You're right. You're getting electricity that was produced several million years ago under ground in [probably] West Virginia, then transferred to a station near your house where it was released and made available to you.
But where it is produced is a completely moot point. We're talking about the internet. The difference between sending a .jpg to my neighbor and sending a .jpg to you in Boston is trivial.
However, this is not how peering arrangements look between a CDN and an ISP. In that case, the CDN is responsible for the backbone traversal, because the CDN is proxying requests or delivering them from cache, at the local peering point relative to the consumer.
In your example, if you are in boston accessing content with an origin in california, your ISP will receive the data in boston, and will not have to backhaul the traffic from california. The CDN will take care of that.
I wasn't originally talking about net-neutrality. In my opinion, the bandwidth available to people in the US (as well as the cost) is terrible. My point with the electricity analogy is that I think I should be able to watch streaming HD video in every room in my house and still have enough bandwidth left over for whatever else I can think of.
Simply: data needs to be treated like electricity. It would be absurd if the power company told me I could run a toaster, but not a toaster and a microwave.
ISPs could deliver this sort of thing[1], they just choose not to (because it might not make financial sense).
[1]Could meaning that this is technologically possible.