Do you think you pay too much, but don’t you know why? The first step to understanding why is to look at your energy bill and understand your electricity rates. You will only then know why your spending is so high and whether you can cut costs by comparing other offers.
It is easier than it seems to understand what you are charged for despite what is supposed to be. You have to know what every concept means and consider that the electricity bill can vary based on two essential rates. On the one hand, we have the fixed electricity rates, which are based on contracted tariffs. On the other one, the variable electricity rates are based on consumption times. Taxes, power meters, distribution charges are some constant – or almost constant charges that must be added.
You can make wiser choices that can save energy and save you money by taking control of your energy consumption. But it is important to understand how energy and electricity rates are established before making informed choices in terms of energy suppliers and plans. This information allows you to monitor, change your consumption, avoid peak hours, and schedule energy-demanding tasks for the lowest rates. You can also switch to a fixed-rate plan to make your budgeting even easier.
Check out these 5 facts to better understand them:
1. Factors that influence electricity rates
Just like any other market, the energy market is influenced by, well… the market itself. The offer-demand determines electricity rates. Meaning, the higher the demand, the higher the costs. Other several factors can influence the price of the market. In general, electricity rates reflect the cost to build, finance, maintain, and operate power plants and the grid. We will debrief the most common factors that influence the electricity rates:
The fuel price can increase during periods of high electricity demand and when fuel supply restrictions or interruptions occur due to extreme weather events and accidental damages to transport and delivery infrastructures, particularly for natural gas or petroleum fuels. In turn, higher fuel prices can lead to higher electricity generation costs.
Power plants, transmission, and distribution prices:
The construction and financing of new power plants, the transmission, connection, and operation costs of both distribution systems and generators affect the energy prices.
They can boost the demand for heating and cooling, and when this happens, the electricity demand rises as well. Based on the power plant used to generate electricity, rain and snow generate low-cost hydropower. When the wind is favorable, wind can generate low-cost electricity. When there is not enough supply or poor weather conditions, it can lead to higher costs.
Depending on the state, Public Utility Commissions (PUCs) regulate prices either fully or partially. Some states also have full deregulation for generators, where prices can vary greatly. Making it easier for customers to choose their own electricity rates and rate structures.
2. Fixed and Variable Electricity Rates
By now you should know there are fixed rates and also variable rates – if not we strongly encourage you to read our article about the difference between fixed and variable electricity rates. One of the biggest benefits of energy deregulation is that many power suppliers are ready to settle with electricity rates at a fixed price.
In general, on fixed rates, the price you pay for your electricity rates is the same throughout the term of your contract. When you “lock in” a rate, what happens at market rates doesn’t matter. The advantage of a price lock is that the prices for budgeting are stable and predictable.
3. Best time of the year to lock in your electricity rates.
The best time to lock in your electricity rates is, of course, when electricity is cheaper. This means either autumn or spring. In summer and winter, electricity market rates are higher due to people’s increased use of air and heat. Planning power consumption during the year at the lowest electricity levels can change your electricity bill if you’re on a variable plan.
If you’re in summer, it doesn’t mean you shouldn’t lock in your rate. In fact, locking in your rate can mean great benefits in the short term, such as having stability on the prices throughout the year. Not having to worry about whether you can use your AC in the midst of a hot day. Prices that aren’t affected by the volatility of the market, among others.
We’ve already seen how the market affects electricity rates in various ways. With locked-in electricity rates, you can have more consistency in your electricity bill monthly, allowing you to have the power to control your monthly costs and expenses. It can also give you the power to forecast your expenses and be more accurate each month. You will save that hard-earned money to spend it on something you actually want.
4. Peak power vs. baseload
Electricity supply costs are changing in minutes. Most consumers pay rates based on seasonal electricity costs under variable rates. On these, price changes reflect changes in electricity demand, availability of production sources, cost of fuel, and availability of power plants. In the summer, prices are usually high when total demand is high because the increased demand is met with more expensive energy sources. But what does this all mean?
Here is where peak load and base electricity plants join the equation. Electricity demand varies over a year, month, or even day. The minimum load during the year is called baseload, which refers to the required electricity to power the minimum demand of power. In general, baseload is covered by “baseload powerplants” fueled by coal or nuclear power. They meet higher volumes of energy, but it is harder to decrease or increase their power capability.
When peak demand is activated, plants that produce this energy get turned on. In general, they’re power plants with less capacity, and thus the costs to run them are higher. We’re sure you’ve seen how – when you have variable rates – electricity rates tend to be cheaper during the night or early mornings. This is due to the use of baseload powerplants.
5. Types of customers
The cost of distributing electricity to the consumer of residential electricity is usually the highest. Industrial consumers consume more and can get a better deal when they get electricity rates. They usually get it at higher voltages, and therefore it is more efficient and cheaper to supply it. These customers consume large amounts of electricity, and their rates tend to be cheaper, but they also pay more on certain taxes.
Energy generation also changes by location. They can vary even within the state. If you happen to live close to a power plant, energy’s price will be lower than if you live far away. You can check out the average electricity prices per state and type of customer to give yourself an idea of how much this varies.
You have the right to select your energy supplier if you live in states like Illinois, Massachusetts, Maine, New Hampshire, or Ohio. And as your utility company continues to distribute energy during the entire switching process, you will have a seamless transition. Meaning no change in quality or service! Check out what energy deregulation means on our blog.
We encourage you to check out our website, enter your zip code, and some basic information about your consumption. You will find out if there’s a rate that may benefit you more than your current one. At Power Choice Now, finding a new energy supplier is straightforward. As a client, you benefit from competitive energy markets. By this, we mean you are entitled to choose the energy supplier that best suits your needs.
Image Credits: By Ivan Radic via Flickr.