7 Important Factors that Affect Electricity Costs

Atmos EnergyIf you wonder why you pay more on electricity bill and your friends having their businesses in other cities pay less, you must think on how electricity prices are set. Typically these prices reflect the cost to construct, finance and run power plants and electricity grid (the intricate network of power transmission and distribution lines).

Some companies even include a financial return for owners and stakeholders in their energy prices. But some companies offer you ways to pay less on energy bills, for example – Atmos Energy.

There are many factors that influence electricity prices. Here are a few.

1. Fuels

Prices of fuel, particularly for petroleum and natural gas fuels (especially in Hawaii and Alaskan villages), may rise during periods of high energy demands and when there are limitations or disruptions in fuel supply due to extreme weather and accidental damage to transport and delivery systems. Increased fuel prices may in turn cause increased costs to produce electricity.

2. Costs of Power Plants

Every power plant has costs associated to financing, development, operation and maintenance.

3. Systems of Transmission and Distribution

The systems of energy transmission and distribution that connect power plants and consumers together have costs associated to construction, operation and maintenance, which include costs of repairing damage to the systems from extreme weather events or accidents, and for improving cyber-security.

4. Weather Conditions

Extreme rise or fall in temperatures can increase demand for heating and cooling, and the eventual increases in electricity demand can push fuel and electricity prices up. Rain and snow offer water for low-cost hydropower production and wind can offer low-cost electricity production when its speeds are favorable.

However, when droughts occur or there are competing calls for water resources, or when there is a fall in wind speeds, the loss of energy production from those resources can exert upward pressure on other sources of fuel/energy and prices.

5. Rules and Regulations

In some states, prices are fully regulated by public service/utility commissions, while other states employ a combination of regulated prices (for transmission and distribution) and unregulated prices (for generators).

6. Seasons

Actually electricity costs change every minute. However, rates are mostly based on the seasonal cost of electricity. Changes in electricity demand, fuel costs, availability of production sources and power plant availability usually bring about variations in prices. Typically electricity prices increase in summer, when total demand is high since costlier production sources are added to fulfill the increased demand.

7. Type of Customer

Energy prices are generally the highest for residential and commercial consumers because the costs of distributing electricity to them are higher. More electricity is used by industrial consumers and at higher voltages; therefore, electricity supply to these consumers is more efficient and less costly. Thus the prices of energy to these consumers are usually close to the wholesale price.

Understanding all these factors will definitely make your mind clear and you can think on ways of bringing your electricity expenditure and costs down.

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