Many people wonder why their electric bills are so high. They feel like they aren’t using enough electricity to justify the price they pay each month to keep the lights on and the home at a comfortable temperature. However, the fee they pay each month is for more than the electricity that enters the house. Customers also pay for building, financing, maintaining, and operating the electrical grid and power plants. Certain companies also share profits with owners and stockholders, and customers pay these dividends through their bills each month. What factors impact the cost of electricity today?
Fuel
Fuel prices fluctuate based on supply and demand, making it hard when comparing electric rates. Petroleum fuels and natural gas prices are impacted by periods of high demand and supply disruptions or constraints. Extreme weather events, such as hurricanes, can lead to higher fuel prices, or a price increase might result from accidental damage to the electrical grid’s infrastructure. These fuels generate and deliver electricity, so consumers must pay the cost.
Power Plants
Energy suppliers operate power plants to deliver electricity. These plants must be financed, built, and maintained. Once they are in place, the company must cover operating costs, which are passed on to the consumer.
Transmission and Distribution Fees
Power plants are connected by transmission and distribution systems. The electric supplier must finance, build, and maintain these structures. Power plant costs also include repair costs. When systems are damaged by extreme weather or accidents, the company pays for repairs and pass the costs to its consumers to continue operating. Today, consumers also pay to protect these power plants from cyberattacks.
Weather
Weather conditions affect the price of electricity. Extreme temperatures increase demand on the electrical grid, which in turn leads to higher fuel and energy costs. However, weather can also benefit customers. When it rains and snows, hydropower generation costs decrease. Winds ensure turbines keep spinning to produce electricity, which helps keep costs down.
There is a downside. Customers pay more for energy during a drought because electricity generation from those sources decreases. The same holds when wind speeds drop, as the turbines aren’t able to contribute to energy generation. Other fuel and energy sources must pick up the slack, leading to higher costs.
Regulations
Regulations affect the price a person pays for electricity. Certain states have public service commissions that regulate energy prices. However, other states have opted for a combination of regulated and unregulated prices. In these states, energy generation remains regulated while the transmission and distribution are unregulated. Consumers in deregulated markets can choose from various energy providers, including competitive options like constellation plans, which may offer fixed rates or renewable energy features.
Seasonal Factors
Most consumers pay more for electricity during the summer, as demand increases when the temperature rises. The cost of electricity rises because the increased demand leads to the need for more efficient electricity generation and delivery.
Location
Where a person lives influences how much they pay for electricity. Power plant availability and local fuel costs affect the price. As previously mentioned, regulations are also a factor in electricity pricing.
Consumer Type
Many people are surprised to learn industrial customers receive the lowest electricity rates. Energy suppliers deliver larger amounts of electricity to industrial facilities, reducing the cost of delivery and generation. They pass these savings on to industrial customers, like buying in bulk. Commercial and residential customers don’t require high levels of electricity, so they don’t see these savings.
Many factors determine energy prices. Consumers must understand what they are paying for to understand their bills. When prices change, electricity costs change. However, electrical suppliers only change their rates seasonally, making determining the cost of electricity a little easier for those who must pay these bills.